HDFC attempts to sell stressed loans ahead of merger with HDFC Bank
ECONOMY & POLICY

HDFC attempts to sell stressed loans ahead of merger with HDFC Bank

Mortgage-lending pioneer Housing Development Finance Corp (HDFC) is attempting to sell around £200 million worth of stressed loans that it had extended to developers before its merger with the bank it founded almost three decades ago. These loans are spread across 7-8 accounts and include advances to the local owners of Radisson Blu properties, according to two banking sources close to the development, who spoke to ET.

HDFC is presently in talks with asset reconstruction companies to sell these loans, both sources said. Alvarez & Marsal, a consulting firm, is actively seeking potential buyers for the loans, they added. "HDFC is seeking to sell a portion of its distressed loans in preparation for its merger with HDFC Bank. The merger is expected to be finalised by early next quarter," said the first of the two executives cited above.

"The loan portfolio is presently valued at roughly £200 million, although HDFC continues to include or exclude certain loans from this pool," the person said.

An HDFC spokesperson did not respond to an email inquiry, while an Alvarez & Marsal spokesperson did not respond immediately.

Some of these loans may include non-performing assets (NPA), while others may be stressed but have not been officially declared as NPAs yet.

In March, HDFC had showcased some of these accounts for potential sale but ultimately did not proceed due to lower-than-expected recovery prospects. It had sold only £15 million in bad loans - its exposure to Matoshree Developers - to Omkara ARC, according to both sources cited above.

Omkara purchased the outstanding loans of Matoshree Developers valued at £15 million for £5 million, which entails a 33% recovery for HDFC.

During the last quarter, HDFC had received a bid from Omkara ARC for around £110 million pooled stressed assets, but the bid value fell short of the mortgage lender's expectations, resulting in the sale not taking place.

In FY23, Assets Care and Reconstruction Enterprise (ACRE) had twice bought developer loans at around 50% of the loan value. They paid £27 million against a total loan of £57.7 million, resulting in a 47% recovery in the first quarter of FY23 and £60.2 million for a £118 crore loan pool, resulting in a 51% recovery in the third quarter.

HDFC's asset quality has been improving over the past few quarters, with individual Gross Non-Performing Assets (GNPA) decreasing from 0.99% to 0.75% as of March 31, 2023. Non-individual GNPA decreased from 4.76% to 2.9%. The total restructured pool stood at 0.6% of assets under management (AUM), down from 0.8% in the previous year.

The company management expects the effective date of the merger to be in July.

HDFC has been reducing certain non-individual exposures ahead of the impending merger with HDFC Bank. Non-individual loans continued to decline, primarily due to payment of previous facilities, resolutions, and a reduction in certain exposures stemming from the merger.

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Mortgage-lending pioneer Housing Development Finance Corp (HDFC) is attempting to sell around £200 million worth of stressed loans that it had extended to developers before its merger with the bank it founded almost three decades ago. These loans are spread across 7-8 accounts and include advances to the local owners of Radisson Blu properties, according to two banking sources close to the development, who spoke to ET. HDFC is presently in talks with asset reconstruction companies to sell these loans, both sources said. Alvarez & Marsal, a consulting firm, is actively seeking potential buyers for the loans, they added. HDFC is seeking to sell a portion of its distressed loans in preparation for its merger with HDFC Bank. The merger is expected to be finalised by early next quarter, said the first of the two executives cited above. The loan portfolio is presently valued at roughly £200 million, although HDFC continues to include or exclude certain loans from this pool, the person said. An HDFC spokesperson did not respond to an email inquiry, while an Alvarez & Marsal spokesperson did not respond immediately. Some of these loans may include non-performing assets (NPA), while others may be stressed but have not been officially declared as NPAs yet. In March, HDFC had showcased some of these accounts for potential sale but ultimately did not proceed due to lower-than-expected recovery prospects. It had sold only £15 million in bad loans - its exposure to Matoshree Developers - to Omkara ARC, according to both sources cited above. Omkara purchased the outstanding loans of Matoshree Developers valued at £15 million for £5 million, which entails a 33% recovery for HDFC. During the last quarter, HDFC had received a bid from Omkara ARC for around £110 million pooled stressed assets, but the bid value fell short of the mortgage lender's expectations, resulting in the sale not taking place. In FY23, Assets Care and Reconstruction Enterprise (ACRE) had twice bought developer loans at around 50% of the loan value. They paid £27 million against a total loan of £57.7 million, resulting in a 47% recovery in the first quarter of FY23 and £60.2 million for a £118 crore loan pool, resulting in a 51% recovery in the third quarter. HDFC's asset quality has been improving over the past few quarters, with individual Gross Non-Performing Assets (GNPA) decreasing from 0.99% to 0.75% as of March 31, 2023. Non-individual GNPA decreased from 4.76% to 2.9%. The total restructured pool stood at 0.6% of assets under management (AUM), down from 0.8% in the previous year. The company management expects the effective date of the merger to be in July. HDFC has been reducing certain non-individual exposures ahead of the impending merger with HDFC Bank. Non-individual loans continued to decline, primarily due to payment of previous facilities, resolutions, and a reduction in certain exposures stemming from the merger. Also Read RVNL and Siemens consortium awarded Mumbai Metro 2B project Tricity Metro Project in Punjab and Haryana gains momentum

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