HDFC Bank-HDFC Credila Deal: 90% Stake Sale Approved by RBI

HDFC Bank, India’s leading private sector lender, has received approval from the Reserve Bank of India (RBI) to sell its 90% stake in HDFC Credila, an education loan company, to a private equity consortium of BPEA EQT and ChrysCapital group. The deal, valued at Rs 9,060 crore, will boost HDFC Bank’s income in the fourth quarter and help HDFC Credila grow its operations with fresh equity infusion.

Background of the deal

HDFC Credila was a subsidiary of HDFC Ltd, the parent housing finance company, until July 1, 2023, when HDFC Ltd merged with HDFC Bank. As a result, the entire investment in HDFC Credila was transferred from HDFC Ltd to HDFC Bank. However, in April 2023, the RBI directed HDFC Bank to reduce its stake in HDFC Credila to under 10% over the next two years, as per the Master Direction on Non-Banking Financial Company – Scale Based Regulation.

Details of the deal

On June 19, 2023, HDFC Bank announced that it had entered into definitive agreements to divest 90% of its stake in HDFC Credila to a private equity investor consortium of BPEA EQT and ChrysCapital at a pre-money valuation of Rs 10,350 crore. BPEA EQT is a part of the BPEA group (formerly known as Barings Private Equity Asia), while ChrysCapital is one of India’s largest and most successful homegrown private equity firms.

The deal received approval from the Competition Commission of India (CCI) on June 23, 2023, and from the RBI on February 23, 2024. HDFC Bank will retain a 10% stake in HDFC Credila post the transaction. The deal is expected to close by March 31, 2024.

Impact of the deal

The deal will have a positive impact on both HDFC Bank and HDFC Credila. For HDFC Bank, the deal will result in a one-time gain of about Rs 9,000 crore in its other income for the fourth quarter of FY24. This will boost its profitability and capital adequacy ratio. For HDFC Credila, the deal will bring in a fresh equity infusion of Rs 2,000 crore from the new investors to support its growth in operations. HDFC Credila is India’s first dedicated education loan company with an asset under management of Rs 22,636 crore and a profit after tax of Rs 233 crore as of September 30, 2023.

The deal also reflects the growing interest of private equity firms in India’s education sector, especially in the education finance segment. The education loan market in India is estimated to be around Rs 1 lakh crore, with a huge potential for growth given the rising demand for higher education and skill development among Indian students.

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