HDFC Bank: HDFC Bank offloads Rs 2,188 crore distressed retail loans to ARCs

Mumbai: Private sector lender HDFC Bank has sold ₹2,188 crore of distressed retail loans to asset reconstruction companies (ARCs) in the last three quarters with the aim to clean its book, said people aware of the matter.

The retail pool consisted mainly of personal and vehicle loans, they said.

HDFC Bank has been selling retail loan portfolios in the last fortnight of every quarter. In the quarters ended June and December, Phoenix ARC acquired two pools, while Edelweiss ARC acquired one pool in the quarter ended September, they said.

In the December quarter, HDFC Bank had invited bids for a credit card portfolio of ₹50 crore from ARCs. However, the auction failed to attract bidders because the reserve price of 23% was perceived as very high, though there were buyers at 10-13%, said another person aware of the matter.

In the June quarter, HDFC Bank sold a ₹1,478-crore retail pool for a consideration of ₹777 crore, and in December it sold ₹262 crore for ₹141 crore. Both trades were done with Phoenix ARC. Both trades were done at 53-54 paise on a rupee.

In the September quarter, the bank sold a ₹448-crore retail portfolio for ₹175 crore to Edelweiss ARC. The trade was done at 39 paise on a rupee.

HDFC Bank, Edelweiss ARC and Phoenix ARC did not respond to a request for a comment.

The retail loan portfolio sold to ARCs had accounts that are classified as non-performing loans – overdue for over 90 days – and those accounts that are classified as special mention accounts-2 – where the overdue is between 61 days and 90 days, the people cited earlier said.

All the retail loans were sold under the conventional 15:85 structure, said two people aware of the matter. Here, 15% of consideration is paid upfront and for the remaining 85% the ARC issues security receipts that are redeemed as and when they recover the overdue.

HDFC Bank may have sold retail NPAs to prevent a spike in non-performing numbers, the people said. The bank’s net non-performing loans for the quarter ended September 2021 stood at ₹4,755 crore, which is 0.40% of its net loan book. However, the share of its retail NPAs to retail loans stood at 1.37% as of September 30, 2021, according to disclosures on its website.

CRISIL Ratings has estimated that the stressed assets in the retail segment will rise to 4-5% by the end of this fiscal from 3% last fiscal. “While home loans, the largest segment, will be the least impacted, unsecured loans are expected to bear the brunt of the pandemic,” the rating agency had said in a statement in October last year.