HDFC looks to sell Rs 2,000 crore stressed developer loans

Mortgage-lending pioneer Housing Development Finance Corp (HDFC) is making final attempts to offload stressed loans of around ₹2,000 crore extended to developers ahead of its merger with the bank it spawned nearly three decades ago. These loans are spread across 7-8 accounts, and include advances to the local owners of Radisson Blu properties, two banking sources close to the development told ET.

HDFC is currently engaged in negotiations 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 looking to sell a part of its distressed loans in preparation for its merger with HDFC Bank. The merger is likely to be finalised by early next quarter," said the first of the two executives cited above.

Some loans may include NPAs

"The loan portfolio currently stands at approximately Rs 2,000 crore, although HDFC continues to include or exclude certain loans from this pool," the person said.

A spokesperson of HDFC did not respond to an email query while an Alvarez & Marsal spokesperson did not respond immediately.

Some of these loans might include non-performing assets (NPA) while some others may be stressed, but haven't formally been declared yet as NPAs.

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 Rs 150 crore in bad loans - its exposure to Matoshree Developers - to Omkara ARC, both sources cited above said.

Omkara ARC offers
Omkara bought the Rs 150 crore worth of outstanding loans of Matoshree Developers for Rs 50 crore, which entails a 33% recovery for HDFC.

During the last quarter, HDFC had received a bid from Omkara ARC for around Rs 1,100 crore 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 Rs 270 crore against a total loan of Rs 577 crore, resulting in a 47% recovery in the first quarter of FY23 and Rs 602 crore for a Rs 1,180-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 the month of 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.