At Rs 12,500 crore, the HDB Financial Services initial public offer (IPO) is not just the biggest NBFC issue but it is one of the largest public floats in two decades. The three-day subscription window runs from June 25-27, with shares priced between Rs 700-740 a share.
But the most watched number is not just the price band but also the HDFC Bank’s stake after the listing of HDB Financial Services.
HDFC Bank stake in HDB Financial before the IPO
HDFC Bank owned a massive 94.36% in HDB Financial Services before the IPO. But this is now set to change due to the structure of the IPO, which includes an Offer for Sale (OFS) worth Rs 10,000 crore by HDFC Bank. There is also a fresh Issue of Rs 2,500 crore. However, the parent company. HDFC Bank will still continue to hold majority stake even after the open offer, as noted in the DRHP filing.
HDFC Bank stake in HDB Financial: Why the stake reduction was important?
Interestingly, this IPO is not only about raising funds, it is about ticking off a regulatory checklist. In the DRHP filing the company noted that in 2023, RBI classified HDB as an NBFC-Upper Layer, meaning it was mandatorily required to list within three years.
But there is more brewing. A draft RBI circular from October 2024 could soon ban overlapping products between banks and their group companies. That includes HDFC Bank and HDB Financial, which offer similar financial services. If the final rules stick, HDFC Bank might be forced to cut its stake in HDB to below 20%, unless RBI permits otherwise.
HDB Financial Services – HDFC Bank: The current equation
Even though HDFC Bank will still be the majority shareholder. That essentially means that the bank will continue to have a big say in the NBFC’s operations-
Many of HDB’s high credit ratings (CRISIL AAA, CARE AAA) are backed by the HDFC Bank name. If the bank’s ownership drops below 51%, some loan covenants could be triggered, leading to repricing or recall of borrowings.
HDB uses the HDFC Bank logo under a licensing agreement that is only valid while it remains a subsidiary. Any dilution in stake could risk losing that brand tag altogether with just three months’ notice.
Nearly 7.71% of HDB’s income (as of September 2024) came from services it provides to HDFC Bank, including back-office and collection support. Any disruption here could impact the revenue stream significantly.