HDFC Bank Ltd., India’s largest private lender, is set to sell up to Rs 10,000 crore (approximately $1.2 billion) worth of loan portfolios using a rare financial tool known as pass-through certificates. This move aims to reduce the bank's exposure to specific sectors and address challenges related to deposit growth.

The bank is negotiating with several local asset managers, including ICICI Prudential AMC, Nippon Life India Asset Management Ltd., and SBI Funds Management Pvt., to issue these certificates. This method of selling loans has not been utilized by HDFC Bank in over a decade. The planned certificates, which will be secured by a pool of the bank’s car loans, are expected to be issued in several tranches over the coming weeks. Investors are likely to see interest rates ranging from 8.3% to 8.5%.

HDFC Bank’s decision comes as it faces regulatory pressures to improve its credit-deposit ratio—a metric that measures the proportion of deposits being lent out. The bank’s credit-deposit ratio had risen to 104% by the end of March, up from the 85%-88% range observed in previous years, according to ICRA Ltd., the local arm of Moody’s Ratings.

To address this imbalance, HDFC Bank is working to shrink its retail loan portfolio. This sale is intended to enhance the bank's credit-deposit ratio, which has deteriorated in recent years as credit growth has exceeded deposit growth.

Earlier this year, HDFC Bank sold a 50 billion rupee loan portfolio to an undisclosed buyer, marking its first such transaction in over ten years. The Reserve Bank of India (RBI) has highlighted the growing gap between credit and deposit growth rates, urging banks to rethink their strategies to boost deposit accumulation.

Finance Minister Nirmala Sitharaman and RBI Governor Shaktikanta Das have both emphasized the need for banks to find ways to increase deposits and improve liquidity. The RBI has also encouraged banks to leverage their extensive networks to attract more savings.

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