HDB Financial Services’ Rs 12,500 crore Initial Public Offering (IPO), one of the largest public issues in India’s NBFC space: Should You Subscribe?

HDB Financial Services’ Rs 12,500 crore IPO opens June 25, driven by RBI’s mandatory listing for “Upper Layer” NBFCs. Backed by HDFC Bank, the company aims to strengthen capital, fuel growth in retail lending, and enhance market presence

About the Issue:  

HDB Financial Services, a subsidiary of HDFC Bank, is launching its IPO to meet regulatory requirements set by the RBI for NBFCs categorized as "Upper Layer" under the October 2022 circular. The company operates 1,680 branches and maintains a diversified AUM with a focus on retail and SME lending, particularly in vehicle finance and loans against property.

The IPO opens for subscription from June 25 to June 27, 2025, with a price band of Rs 700–740 per share and a lot size of 20 shares. Retail investors must invest a minimum of Rs 14,800 at the upper band. The issue size is Rs 12,500 crore, comprising a fresh issue of Rs 2,500 crore (3.38 crore shares) and an offer-for-sale (OFS) of Rs 10,000 crore (13.51 crore shares) by HDFC Bank.

The IPO allotment is expected on June 30, with a tentative listing on July 2 on BSE and NSE. Investors are advised to bid at the cutoff price to improve allocation chances amid potential oversubscription. sNII and bNII minimum applications require Rs 2.07 lakh and Rs 10.06 lakh, respectively. The issue is managed by 13 top investment banks, with Link Intime as the registrar.

See the issue details below.

Objects of the Issue

The primary objective of HDB Financial Services' IPO is to augment its Tier-I capital base to support future business growth, particularly onward lending across its core verticals—Enterprise Lending, Asset Finance, and Consumer Finance—and to meet regulatory capital adequacy norms. A portion of the proceeds will also be used to cover offer-related expenses.

Additionally, the IPO aims to enhance the company's brand visibility and establish a public market for its equity shares. The Offer comprises both a Fresh Issue (proceeds to the company) and an Offer for Sale by HDFC Bank (proceeds to the promoter, not the company).

Promoter

HDB Financial Services is a subsidiary of HDFC Bank Limited, which is also its promoter. As of June 17, 2025, HDFC Bank holds 94.04 per cent of the company's equity. This was 94.40 per cent a year ago and 94.68 per cent two years ago. Post-IPO, HDFC Bank will retain majority ownership in the company.

Industry Outlook

India’s credit market is projected to grow at 13–15 per cent annually by FY28, presenting a favorable environment for NBFCs to scale operations. According to CRISIL, NBFC credit is expected to grow at a faster 15–17 per cent CAGR from FY25 to FY28, led by retail, MSME, and corporate lending segments.

NBFCs’ share in overall systemic credit is set to rise from 21 per cent in FY25 to 22 per cent by FY28, aided by their agility, tech-driven models, and reach in underserved segments. Retail lending now accounts for 48 per cent of NBFC portfolios, and rural markets offer significant expansion potential due to NBFCs’ strong grassroots presence.

On the regulatory front, HDB Financial falls under the RBI’s "Upper Layer" NBFC category, requiring enhanced compliance and mandatory listing within three years. Additionally, a draft RBI circular (October 2024) may force HDFC Bank to lower its stake in HDB below 20 per cent unless approved otherwise—an event that could influence HDB’s strategic direction and market valuation.

Company Profile and Business Operations

Incorporated in 2007, HDB Financial Services Ltd (HDBFSL) is a leading retail-focused non-banking financial company (NBFC) and a subsidiary of HDFC Bank Ltd. Classified as an Upper Layer NBFC (NBFC-UL) by the RBI, the company is among India’s top diversified NBFCs by gross loan book.

HDBFSL offers a broad range of lending products across three core verticals:

• Enterprise Lending – Secured and unsecured loans to MSMEs and salaried individuals, including loans against property, business loans, and personal loans.
• Asset Finance – Financing for commercial vehicles, construction equipment, tractors, and refinancing solutions.
• Consumer Finance – Loans for autos, consumer durables, digital/lifestyle products, and relationship-based personal loans.

In addition to lending, the company provides BPO services (sales, back-office, and collections) to HDFC Bank and distributes fee-based products such as insurance to its lending customers.

With a focus on underserved markets, HDBFSL has built a strong “phygital” distribution network of 1,771 branches and 1,170 operational locations across India, over 80 per cent of which are in non-metro areas. The company has also digitized over 95 per cent of its customer onboarding and collections.

Backed by AAA (Stable) credit ratings, HDBFSL benefits from its strong parentage, prudent underwriting, scalable technology, and risk management systems. It continues to demonstrate consistent growth in profitability, operational efficiency, and financial inclusion across emerging segments of India’s economy.

Financials

HDB Financial reported strong operational growth in FY25, with Revenue from Operations rising 15 per cent YoY to Rs 16,300.28 crore from Rs 14,171.12 crore in FY24, continuing its consistent upward trend since FY23. EBITDA rose 14 per cent YoY to Rs 9,512.37 crore, maintaining a stable margin of 58.36 per cent, broadly in line with FY24.

However, Net Profit declined 12 per cent YoY to Rs 2,175.92 crore in FY25, compared to Rs 2,460.84 crore in FY24, leading to a contraction in Net Profit Margin to 13.35 per cent from 17.37 per cent. This decline may reflect higher provisions, costs, or tax impacts. Correspondingly, EPS (Basic) dropped to Rs 27.40 from Rs 31.08, while Diluted EPS decreased to Rs 27.32 from Rs 31.04.

Despite margin pressure at the bottom line, the company has delivered healthy revenue and EBITDA growth, suggesting robust operational performance. A recovery in net profit will be key to sustaining investor confidence going forward.

 (Source – Company’s RHP)

Operational Metrics

1. Customer Base and Distribution Network

 (Source – Company’s RHP)

2. Loan Book Composition (Including Total Disbursements)

(Source – Company’s RHP)

3. Profitability & Efficiency Metrics

4. Asset Quality

5. Capitalization & Leverage

HDB Financial continued its steady expansion in FY25, growing its branch network to 1,771 and increasing its employee base to over 60,000. The company reported a robust loan book of Rs 1.07 lakh crore, growing at a 23.5 per cent CAGR over FY23–25, with secured loans forming 73 per cent of the portfolio. Enterprise and asset finance segments remain dominant, while consumer finance saw the fastest growth. Total disbursements rose 9 per cent YoY to Rs 66,107 crore. Net Interest Income increased 18 per cent to Rs 7,445 crore, supported by improved yields, though NIM compressed slightly to 7.56 per cent due to rising borrowing costs. Operating efficiency remained stable with a cost-to-income ratio of ~43 per cent. However, asset quality weakened marginally, with gross NPA rising to 2.26 per cent and credit costs doubling YoY to Rs 2,113 crore. Return ratios were impacted, with RoE falling to 14.72 per cent and RoA to 2.16 per cent, despite a stronger equity base and adequate capital buffers (CRAR Tier I at 14.67 per cent). Overall, while HDB continues to scale operations effectively, profitability came under pressure from higher provisioning and softer margins.

Strengths:
HDB Financial Services Ltd (HFSL), a part of the prestigious HDFC Group, is the seventh-largest diversified NBFC in India, backed by a strong parentage that enhances its credibility. The company has built a highly granular and de-risked loan portfolio, with no single borrower accounting for over 0.34 per cent and no product segment exceeding 25 per cent of its gross loan book. As of March 31, 2025, HDB served 19.2 million customers, showing a CAGR of 25.45 per cent over two years and maintaining a deep presence in underbanked areas—over 80 per cent of its branches lie outside the top 20 Indian cities. Its diversified offerings across Enterprise Lending (39.30 per cent), Asset Finance (38.03 per cent), and Consumer Finance (22.66 per cent) ensure risk dispersion. Backed by AAA credit ratings from CRISIL and CARE, the company benefits from low-cost borrowing and a strong liability franchise. While the company posted consistent top-line growth, FY25 saw some bottom-line pressure due to interest rate volatility. Nonetheless, robust credit processes, low GNPA (2.26 per cent), advanced tech platforms, and a "phygital" distribution network continue to support operational strength. Historically, HDFC Group’s past IPOs have rewarded investors, which adds to investor confidence in HDB’s long-term outlook. The current valuation, though fully priced, offers room for long-term capital appreciation.

Weaknesses:
Despite its strong foundation and backing from a reputed promoter group, HDB Financial Services faces several structural and competitive challenges that could affect its long-term trajectory. While it currently benefits from HDFC Bank’s operational and financial support—such as low-cost borrowings and credit enhancement—the Draft Red Herring Prospectus (DRHP) warns this may taper post-listing. This is especially relevant given RBI’s draft guidelines that may require HDFC Bank to reduce its stake below 20 per cent. Unlike the seamless 2023 merger of HDFC Ltd and HDFC Bank, HDB’s relationship with its promoter is governed by time-bound, revocable contracts.

A critical element is HDB’s right to use the HDFC Bank brand, licensed only until July 1, 2028, or earlier if it ceases to be a subsidiary. This agreement can be revoked with just three months’ notice, posing risks to brand continuity. The DRHP also flags intra-group competition, as HDB operates in overlapping segments with HDFC Bank, HDFC Sales, and HDFC Securities. As it becomes more autonomous, such overlaps could lead to conflicts of interest and weaken its positioning.

Further, concerns persist about asset quality and liquidity. Gross Stage 3 loans rose from 1.90 per cent in FY24 to 2.26 per cent in FY25, and nearly 27 per cent of its book is unsecured lending—typically riskier in downturns. Past negative operating cash flows also raise questions on liquidity. While the IPO is a fresh issue, these headwinds warrant close monitoring as the company enters its next growth phase.

Peer Comparison

The identified peers of HDB Financial Services Limited include leading NBFCs such as Aditya Birla Finance Limited, Bajaj Finance Limited, Cholamandalam Investment and Finance Company Limited, L&T Finance Limited, Mahindra & Mahindra Finance, Shriram Finance Limited, Sundaram Finance Limited, and Tata Capital Limited.

HDB Financial Services demonstrates a balanced profile with moderate growth, controlled asset quality, and reasonable profitability. While it remains less aggressive than high-growth peers, its valuation appears fair relative to its performance, positioning it as a stable, mid-tier player in the NBFC segment.

Table 1: Valuation & Profitability Metrics (FY2025)

Table 2: Asset Quality, Yield & AUM Metrics (FY2025)

HDB Financial Services is positioned in the mid-range among peers in terms of valuation, with a P/E of 27x and P/B of 3.7x, slightly below the peer median of P/B 3.9x. The company’s RoE of 14.7 per cent and RoA of 2.2 per cent indicate steady profitability but are lower than top peers like Bajaj Finance (RoE: 19 per cent, RoA: 4.6 per cent) and Cholamandalam Investment (RoE: 20 per cent), suggesting scope for operational improvement.

Asset Quality & Yields:
HDB’s asset quality remains stable with Gross NPA at 2.26 per cent and Net NPA at 0.99 per cent, better than Mahindra Finance and Shriram Finance but slightly weaker than Bajaj Finance and Sundaram Finance. Its Yield on Advances stands at 14.0 per cent, indicating a balanced lending profile, though below peers like Bajaj Finance (18.8 per cent) and Shriram Finance (16.7 per cent). Credit cost at 2.1 per cent is moderately placed, reflecting a controlled risk environment.

Funding and Growth:
The Cost of Borrowing at 7.9 per cent is in line with most peers, indicating competitive funding access. HDB’s Gross AUM of Rs 1.07 lakh crore with a CAGR of 20 per cent (FY22–25) shows healthy scale and growth momentum, though it lags behind fast-growing peers like Cholamandalam (34 per cent CAGR) and Bajaj Finance (28 per cent CAGR).

Outlook

HDB Financial Services (HDB), a key subsidiary of HDFC Bank, is entering the capital market as a prominent retail-focused NBFC targeting India’s underserved and underbanked segments. With a significant presence in enterprise lending (39 per cent), vehicle finance (38 per cent), and customer finance (23 per cent), and over 70 per cent of its branches located in tier-4 towns and beyond, HDB is strategically positioned to tap into underpenetrated rural and semi-urban credit markets. As of FY25, the company holds a 2.2 per cent market share by industry AUM, supported by a rapidly growing customer base and the strong brand equity of its parent, HDFC Bank.

India’s broader credit market is poised for steady growth at a 13–15 per cent CAGR by FY28, offering long-term structural opportunities for players like HDB that combine strong balance sheets with wide retail reach. HDB’s granular loan book—where no single product exceeds 25 per cent of gross loans and the top 20 borrowers contribute less than 0.34 per cent—adds resilience and stability to its lending model. Moreover, the firm enjoys top-tier long-term credit ratings, ensuring access to low-cost capital and favourable funding tenors.

Despite these strengths, HDB operates in a highly commoditised and competitive NBFC landscape, facing well-established players such as Bajaj Finance, Cholamandalam Investment, and Shriram Finance. The IPO is valued at a P/E of 27x and P/B of 3.7x post equity issue, indicating that it is fairly to fully priced compared to peers—though this is justifiable given its parentage and strategic footprint. Post-IPO, the company will have a market capitalisation of Rs 61,388 crore and a net worth of Rs 17,437 crore, with HDFC Bank’s promoter stake reducing to 74.2 per cent.

Given its diversified loan portfolio, robust customer growth, strong HDFC Bank backing, and favourable long-term credit outlook, investors may consider subscribing to the IPO for medium- to long-term wealth creation. Additionally, the fairly priced issue could offer modest listing gains, provided broader market sentiment remains positive.