IPO-bound HDB Financial Services Q3 profit hit by rising stage-3 assets, provisions

The loan portfolio of HDB Financial Services grew by 22 percent year-on-year

IPO-bound HDB Financial Services, in which HDFC Bank holds a 94 percent stake, reported a 26 percent year-on-year decline in net profit for the third quarter of FY25. This decline was due to an increase in provisions linked to a deterioration in Stage 3 assets, as explained by the management during its analyst conference call.

The management stated that the higher provisions included additional buffers known as management overlays, which were introduced due to a less optimistic economic outlook.

The gross Stage 3 asset ratio increased by approximately five basis points compared to the previous quarter, while remaining unchanged from the same period last year at 2.25 percent. However, it was higher than the 2.10 percent reported in the previous quarter.

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The loan portfolio of HDB Financial Services grew by 22 percent year-on-year and 4 percent quarter-on-quarter, reaching Rs 1.02 lakh crore in the third quarter of FY25. The net interest margin for the quarter stood at 7.5 percent.

The company served 18.4 million customers through its network of 1,792 branches located in 1,168 cities and towns. During the quarter, it added 0.9 million customers and opened 20 new branches. Disbursement activity increased by 3.7 percent compared to the previous quarter, primarily driven by the asset finance and consumer finance segments.

These weaker financial results come after HDB Financial Services filed its draft red herring prospectus in late October to raise Rs 12,500 crore through an initial public offering. This filing aligns with the Reserve Bank of India’s scale-based regulation framework, which requires upper-layer non-banking financial companies to list on stock exchanges by the end of September.

The proposed initial public offering will include fresh equity shares worth Rs 2,500 crore and an offer for sale of Rs 10,000 crore by its promoter, HDFC Bank. Following the fundraising, HDB Financial Services will remain a subsidiary of HDFC Bank, as the private lender has previously stated.

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