HDFC Bank plans to sell $1.2 billion of loans via rare debt tool

India’s largest private lender HDFC Bank plans to sell as much as Rs 10,000 crore ($1.2 billion) of loan portfolios using a rare debt instrument, as it seeks to cut exposure to certain sectors amid challenges in raising deposits, according to people familiar with the matter.

The bank is in talks with local asset managers including ICICI Prudential AMC, Nippon Life India Asset Management and SBI Funds Management to issue so-called pass through certificates, a route that has not been used in a decade by the bank, the people said, asking not to be identified as the discussions are private.

The certificates, to be backed by a pool of the bank’s car loans, will likely be issued in multiple tranches in the next few weeks, the people said. The securities are expected to offer interest rate in the range of 8.3-8.5% to investors, they said.

The bank is trying to shrink its retail loan portfolio under heightened regulatory pressure in the banking industry to improve credit-deposit ratios — a measure of how much of a bank’s deposits are being lent out. The sale, if materialized, will help HDFC Bank improve its CD ratio which has worsened in recent years as credit growth outpaces deposit growth in the nation.