In a move that could change the face of India’s non-banking financial services sector, Japan’s largest bank Mitsubishi UFJ Financial Group (MUFG) is in advanced talks to buy up to 19% stake in HDB Financial Services, the non-banking arm of HDFC Bank, for INR 12,000 crore.
This deal would value HDB Financial between INR 71,000 crore to 75,000 crore (~USD 8–8.5 billion). This comes at a critical time for HDFC Bank as it navigates new RBI guidelines and prepares for the IPO of its subsidiary.
Back to the Table with Momentum
This is not the first time MUFG and HDFC Bank have been in talks over HDB Financial. An earlier attempt to close the deal in April 2024 failed due to valuation issues. But with renewed urgency – triggered by RBI guidelines – both parties are back to the table with HDFC Bank showing more flexibility on pricing.
“The discussions between HDFC Bank and MUFG are in the final stages, MUFG will pick up 17–19% stake,” according to some insider reports. The deal could be done in a month.
Regulatory Drivers for Stake Sale
The talks were triggered by RBI’s draft circular on 4 October 2024 which says banks should reduce their stake in subsidiaries that operate in overlapping financial services. Specifically, the circular disallows multiple entities in the same group from doing similar lending businesses – a situation that affects HDFC Bank and HDB Financial.
Under the circular, banks have a two-year window from the date of implementation to reduce such stakes. HDFC Bank currently owns 94.54% in HDB Financial. A stake sale to MUFG would be a strategic move to pre-empt RBI guidelines and avoid complications around the IPO.
