40789 - HDB Financial Services

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Summary of Investment Information

Project Number

40789

Company Name

HDB FINANCIAL SERVICES LIMITED

Date SPI Disclosed

May 16, 2018

Country

India

Region

South Asia

Projected Board Date

Jun 15, 2018

Environmental Category

FI-2 - Limited

Status

Completed

Last Updated Date

Dec 24, 2021

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Jun 21, 2018
Signed : Aug 2, 2018
Invested : Sep 5, 2018

Sector

Other Non-Banking Financial Institution (NBFI)

Project Description

The proposed investment comprises senior debt investment in HDB Financial Services Limited (“HDB” or the “Company”) which is a non-banking finance company(“NBFC”) providing financing to micro-small and medium enterprises (“MSMEs”) across India, and is a subsidiary of HDFC Bank Limited, India’s largest private sector bank. HDB operates through a pan-India (22 states and 4 union territories) distribution network of more than 1,160 branches across 831 cities and offers a range of loan products, both secured and unsecured.

As of March 31, 2018, HDB has an asset base of INR447,539 million (US$6.9 billion) and loan portfolio of INR435,727 million (US$6.7 billion). HDB’s primary focus is on borrowers whose credit requirements are less than US$10,000).The proposed IFC debt facility will enable HDB to expand its individual micro& small business loan portfolio in the low-income states (“LIS”) of India.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	144.50
Equity

IFC's loan to the financial institution described in this SII is targeted for on-lending to the following sector(s):

Product Type	Use of Proceeds
Straight Senior Loan	Loans to MSME (mix of Micro and SME)
Straight Senior Loan	Loans to MSME (mix of Micro and SME)
Straight Senior Loan	Loans to MSME (mix of Micro and SME)

IFC's Definitions of Targeted Sectors can be found here.

Development Impact

Access to Microfinance & MSMEs: This Project will help in expanding the outreach of access to microfinance to lower end of MSMEs who have little or no access to formal sources of financing. HDB intends to grow its portfolio at an average CAGR of 30-35% over the next five years as well as grow its current customer base at a similar growth rate. 2. Geographically balanced growth of microfinance: This Project will promote a more geographically balanced growth of microfinance in India by supporting an individual lending model for financing micro / small enterprises as well as small businesses.

1. Demonstration Effect and Forging Long Term Partnership: IFC's investment would contribute to demonstrating the sustainability of lending to the micro/small enterprises in LIS of India and build lenders/ investor confidence in small and micro lending in the LIS. 2. Diversification of Funding: IFC's debt investment will help the Company diversify sources of funding by providing comfort to potential lenders and investors. While the Company has several banking relationships and is a frequent issuer of NCDs, most of the subscribers to the Company's NCDs have been domestic investors. An investment by IFC will be amongst the first investments by a large, international institutional investor in the Company. 3. Global Best Practices: IFC, through its global experience with MFIs, MSME financing entities and other low-income financing entities is uniquely positioned to help HDB as it seeks to become a key financial services provider in the lower MSME segment. IFC can share its global experience in bank down-scaling as well as connect HDB to its extensive FI network, facilitate peer to peer learnings and provide global comparators and benchmark.

E&S Category Rationale / Risks and Mitigation

The company is involved in on lending to the Micro, Small and Medium Enterprises, through equipment finance, mortgage loans and unsecured business loans. IFC loan will be used to further increase the on lending to the micro and small enterprises operating in low income states in India. Overall, the project present limited adverse environmental or social risks or impacts. Hence, the project is categorized as FI-2. The applicable performance requirements will be i) the IFC- FI Exclusion List; and ii) The host country E&S laws and regulations.

Main E&S risk and impacts of the project emanates from the loans to business enterprises. Generally, these E&S risks and impacts will be related to workplace and labour practices, occupational health and safety, compliance to applicable laws related to licensing, permitting etc. To manage these risk in portfolio, the Company will develop and implement an E&S risk management system (ESMS) and appoint an E&S officer to ensure implementation of ESMS. The Company will also put in place a life and fire safety policy for the premises it occupies.

Contacts

For Inquiries About the Project, Contact

HDB Financial Services Limited
Mr. Haren Parekh
Chief Financial Officer
022-49116767
Haren.parekh@hdbfs.com
Keshavrao Khadye Marg, Mahalaxmi, Mumbai - 400034
https://www.hdbfs.com/

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Task Title & Description	Anticipated Completion Date
Nominate officers	06/20/2018
Establish SEMS	06/20/2018
Develop a life and fire safety policy	09/13/2018

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