Shares of HDB Financial Services Ltd. will begin trading in Mumbai on July 2, 2025 after the company’s 125 billion-rupee (US$1.5 billion) initial public offering (IPO).

This IPO is the largest in India for 2025 and priced shares at 740 rupees (US$8.65) each, the highest in the marketed range.

HDB Financial Services, a subsidiary of HDFC Bank Ltd., attracted significant investor interest.

This included participation from global funds such as Morgan Stanley and Allianz SE, as well as domestic institutions like Life Insurance Corp. of India.

🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ India’s shadow banking sector finding new growth paths amid funding shifts

HDB Financial’s IPO comes at a pivotal time for India’s shadow banking sector, which is experiencing significant transformation in its funding strategies.

Bank credit to non-banking financial companies (NBFCs) has actually declined by 0.3% year-on-year to ₹15.63 trillion as of May 2025, a stark contrast to the 16% growth seen just a year earlier 1.

This shift reflects NBFCs’ strategic pivot toward bond markets for cheaper and more efficient capital access, with corporate bond issuances reaching a record ₹3 trillion in Q1 2025 1.

HDB stands out in this landscape with its massive scale, operating 1,700+ branches with 90,000 employees and managing a loan book of nearly $12 billion, providing essential financial services to underbanked populations that traditional banks often overlook.

The company’s growth trajectory demonstrates the vital role shadow lenders play in India’s financial inclusion efforts, particularly as they reach customers with limited credit history in a country with significant unbanked populations.

2️⃣ Valuation gaps reveal both opportunity and caution in NBFC space

HDB Financial’s IPO pricing at 3.4 times book value highlights a notable valuation discount compared to established peers in the shadow banking sector.

This pricing sits well below major competitors like Bajaj Finance (6x book value), Cholamandalam Investment (5.7x), and Sundaram Finance (4x), suggesting potential upside for investors if HDB can narrow this gap 2.

The discount likely reflects both opportunity and caution. While HDB benefits from HDFC Bank’s strong parentage and brand association, investors may be exercising prudence given the recent regulatory scrutiny and rising delinquencies in the NBFC sector 3.

Recent HDB Financial Services developments