Market regulator Sebi is scrutinizing a share issuance by HDB Financial Services from 2008, potentially violating Companies Act provisions, as the NBFC gears up for a ₹12,500 crore IPO.
Mumbai: The Securities and Exchange Board of India (Sebi) is examining a potential violation of the Companies Act by HDB Financial Services 17 years ago as the non-bank lender prepares for a $1.5 billion (₹12,500 crore) initial public offering (IPO), three people aware of the matter said. The focus is on a 2008 share issuance to over 50 HDFC Bank employees, potentially contravening regulations requiring Sebi clearance for public issues.
Sebi's scrutiny centers on whether the allotment constituted a public issue requiring regulatory approval, as it involved more than the permissible limit for private placements. A preferential issue such as the one made by HDB is a private placement, and such an issue cannot be made to more than 50 investors without Sebi approval.
According to the draft red herring prospectus (DRHP) HDB had made a preferential allotment of 12 million shares to 410 employees of HDFC Bank on 12 January, 2008. Some of these employees include Aditya Puri, the then chief executive officer of HDFC Bank, and other senior officials.
The potential repercussions range from penalties to market debarment, contingent on the MCA's assessment. HDB's IPO plans involve a fresh issue of ₹2,500 crore and an offer for sale of ₹10,000 crore by parent HDFC Bank, aimed at meeting RBI's listing norms for upper-layer NBFCs.
While HDB awaits Sebi's communication, legal interpretations differ on whether the issuance qualifies as an ESOP, which would exempt it from Sebi approval. Experts suggest HDB may need to amend its IPO filings or seek settlement with Sebi, potentially involving NCLT intervention. Moneycontrol reported that HDB had restarted talks with Mitsubishi UFJ Financial Group (MUFG) after a brief pause for a 20% stake in the company.
HDFC Bank also will have to bring down its stake in HDB Financial Services to below 20% in future to comply with RBI’s draft norms on regulating banks’ group businesses. The central bank's draft rules released last year aim to remove any overlap in businesses carried out by a bank and its subsidiaries.
The company reported a 20% sequential decline in net profit to ₹472.3 crore at the end of December 2024, primarily due to higher credit costs. According to Macquarie Research, the non-bank lender has seen an increase in credit costs due to stress in unsecured, commercial vehicle and construction equipment loan portfolios.
