HDB FINANC SER IPO

Objects of the Offer

• Diversify and expand its addressable customer segments by widening and enhancing its product offering.

• Continue to expand its pan-India omni-channel distribution network

• Continue to invest in technology, data analytics and artificial intelligence to further improve customer experience, increase organisational productivity and decrease costs.

• Continue to diversify its borrowing profile to optimise borrowings costs.

• Further strengthen and improve its robust risk management framework as well as underwriting and collections capabilities to minimise the risk of credit losses

• Continue to attract, upskill and retain talented employees by strengthening its organizational culture.

• Highly granular retail loan book, bolstered by a large and rapidly growing customer base with a focus on serving the underbanked customer segments.

• Large, diversified and seasoned product portfolio with a sustainable track record of diversification, growth and profitability through the cycles.

• Tailored sourcing supported by an omni-channel and digitally powered pan-India distribution network.

• Comprehensive systems and processes contributing to robust credit underwriting and strong collections.

• Advanced technology tools driving enhanced customer experience and efficiency across each stage of the customer lifecycle.

• High-quality liability franchise with access to low cost, diversified borrowing sources and the highest credit rating.

• Track record of robust financial performance with sustainable and profitable growth.

• Stable, highly experienced and professional management team supported by a talented workforce.

• Distinguished parentage of HDFC Bank, India`s largest private bank, enjoying strong trust and brand equity with consumers.

• Its Promoter may be required to significantly reduce its ownership in the Company, i.e., to less than 20% (or any such higher percentage with prior RBI approval) on account of overlapping business with its Promoter and one of the members of its Promoter Group if the draft circular issued by the RBI on October 4, 2024 is implemented in its current form, which may have a material adverse impact on its business operations, financial position and share price.

• Its Gross Stage 3 Loans amounted to 2.26% of Total Gross Loans as at March 31, 2025, which was an increase from 1.90% as at March 31, 2024. Non-payment or default by its customers, the company inability to provide adequate provisioning coverage for non-performing assets or change in regulatorily mandated provisioning requirements may adversely affect its financial condition and results of operations.

• As at March 31, 2025, unsecured loans comprised 26.99% of its Total Gross Loans, which is a decrease from 28.66% as at March 31, 2024. The company unsecured loan portfolio is not supported by any collateral that could help ensure repayment of the loan, and in the event of non-payment by a borrower of one of these loans, its may be unable to collect the unpaid balance.

• As at March 31, 2025, secured loans comprised 73.01% of its Total Gross Loans. The value of collateral for its secured loans may decrease or the company may experience delays in enforcing collateral, impacting its ability to fully recover the collateral value, thereby exposing it to potential loss that could adversely affect its business, results of operations, cash flows and financial condition.

• Its may face asset-liability mismatches in the future, which may cause liquidity concerns and consequently affect its profitability, cash flows, business, results of operations and financial condition.

• The Company, Promoter and Directors are involved in certain legal proceedings, including actions taken and penalties imposed by relevant regulatory authorities, and any adverse outcomes in such proceedings may have a material adverse effect on its reputation, business, results of operations, cash flows and financial conditions.

• The company has incurred negative cash flows from operating, investing and financing activities in Fiscal 2023 and may continue to do so as the company invest in further expanding its distribution network in India.

• The Offer consists of an offer for sale, the proceeds of which will not be available to the Company.

• The company provide business process outsourcing ("BPO") services such as back office, sales support and collection services to its Promoter, HDFC Bank, and the profit before tax from BPO services was 2.44% of the total profit before tax of the Company as of March 31, 2025. Discontinuation of such services to HDFC Bank may adversely impact its business, results of operations and financial condition.

• The company relies on the parentage of its Promoter. However, the interests of the Promoter as its controlling shareholder may conflict with the company interests or the interests of its other shareholders. Currently, the Company offers the same products as those offered by its Promoter and certain members of its Promoter Group, namely, HDFC Sales Private Limited and HDFC Securities Limited.

• The company relies on a trademark license agreement with its Promoter, HDFC Bank, to use the HDFC Bank logo. Any termination of its rights to use the HDFC Bank logo or any reputational harm to the HDFC Bank brand could materially and adversely affect its brand recognition, business, financial condition and results of operations.

• Its may be impacted by volatility in interest rates, which could cause the company Net Interest Income and its Net Interest Margins to decline and adversely affect its business, results of operations, cash flows and financial condition. The company is primarily dependent on wholesale borrowing sources.

• The company relies on wholesale borrowing sources. If the company is unable to secure funding on acceptable terms and at competitive rates when needed, it could have a material adverse effect on its business, results of operations, cash flows and financial condition.

• Any downturn in the macroeconomic environment in India could adversely affect its business, results of operations, cash flows and financial condition.

• Its may not be successful in implementing the company growth strategies or sustaining its growth and financial performance at similar rates as experienced in recent years.

• The lending services industry in India is highly competitive, including competition from established banks and NBFCs having large networks of branches or ATMs with advanced technologies and cross-selling capabilities, fintech start-ups and private unorganised and informal financiers in rural areas, and its inability to compete effectively could adversely affect its business, results of operations, cash flows and financial condition. The company market share, on the basis of our AUM, for Fiscal 2025 is approximately 2.22%, according to the CRISIL Report.

• Its may have to comply with regulations and guidelines issued by regulatory authorities in India, including the Reserve Bank of India, the Securities and Exchange Board of India (the "SEBI") and the Insurance Regulatory and Development Authority of India (the "IRDAI"), which may subject it to penalties or business restrictions and increase the company compliance costs.

• The company is subject to periodic inspections by the RBI in India. Non-compliance with regulations and observations made during the RBI`s inspections could expose it to penalties, suspension and restrictions as well as cancellation of its licence.

• As an Upper Layer Non-Banking Financial Company ("NBFC-UL"), the Company is subject to additional compliance requirements as communicated by RBI from time to time.

• The company has certain contingent liabilities and its business, results of operations, cash flows and financial condition may be adversely affected if these contingent liabilities materialise.

• The company operates in markets with continuously emerging technology needs. If the company fails to integrate its technological capabilities in the company operations, it could adversely affect its business growth and results of operations.

• The company faces cybersecurity threats, such as hacking, phishing and trojans, attempting to exploit its network to disrupt services to customers or theft or leaking of sensitive internal data or customer information. Such events may damage its reputation and adversely impact the company business and financial results.

• Its business may be adversely affected by seasonal trends in the Indian economy.

• Its business is subject to various operational risks associated with the financial industry, including fraud.

• The company is subject to the risk of failures of, or a material weakness in, its internal control systems, which could have a material adverse effect on its reputation, business, results of operations, cash flows and financial condition. Additionally, the company is subject to downtimes or failures of its information technology ("IT") systems. Such events may damage its reputation and adversely impact the company business and financial results.

• If the company fails to identify, monitor and manage risks and effectively implement its risk management policies, it could have a material adverse effect on its business, financial condition, results of operations and cash flows.

• If the company is unable to comply with the capital adequacy requirements stipulated by Reserve Bank of India, it could have a material adverse effect on its business, results of operations, cash flows and financial condition.

• New-to-credit borrowers constituted 11.57% of its Total Gross Loans as at March 31, 2025. The company may not be able to properly assess the credit worthiness of new-to-credit borrowers, and loans extended to such new-to-credit borrowers may accordingly have a higher risk of non-performance or default.

• The company relies on the accuracy and completeness of information about customers and counterparties. Any misrepresentation, errors or incompleteness of such information could adversely affect its business, results of operations, cash flows and financial condition.

• Third-party partners contributed to 18.33% of its total disbursements for Fiscal 2025. The company relies on third-party partners in certain parts of its business, and issues with these partners, or failures to continue to expand its current third-party partner network, could adversely affect its business and financial performance.

• Its Promoter is subject to periodic inspections by the RBI in India. Non-compliance with regulations and observations made during the RBI`s inspections could expose its Promoter to penalties, suspension and restrictions as well as cancellation of its licence. Violations by its Promoter or regulatory actions against the company Promoter could adversely affect its reputation and business.

• Certain of its Group Companies are subject to regulation and regulatory oversight by various regulators in India. Non-compliance with regulations could expose such Group Companies to penalties, suspension and restrictions as well as cancellation of their licence. Violations by its Group Companies and regulatory actions against its Group Companies could adversely affect the company reputation and business.

• The company outsource certain operational activities to third-party IT service providers and collection agents. Any lapse by such third-party service providers may have adverse consequences on its business and reputation.

• The company has distribution agreements with third parties and termination or failures to renew such distribution agreements may adversely affect its business, results of operation and financial condition.

• The company has entered into a co-lending arrangement with another non-banking financial company. The company cannot assure that such co-lending arrangement will not be terminated or paused which may impact the growth of its business.

• The company has entered into and may continue to enter into related-party transactions, which may potentially involve conflicts of interest.

• Its inability to comply with the financial and other covenants under the company debt financing arrangements could adversely affect its business, results of operations and financial condition.

• The bankruptcy code in India may affect its rights to recover loans from the company customers.

• Its may not successfully implement the company sustainability initiatives or adequately meet India`s Corporate Social Responsibility ("CSR") reporting requirements, which could adversely affect its reputation, access to capital, business and financial condition.

• Its may not be able to prevent others from unauthorised use of its intellectual property and may in the future become subject to patent, trademark and/or other intellectual property infringement claims.

• If customers transfer their loans from it to other banks or financial institutions, its Total Gross Loans and assets under management may decrease or fails to increase.

• The company is dependent on its Key Managerial Personnel and Senior Management Personnel, and the loss of, or its inability to attract or retain such persons could adversely affect its business, results of operations, cash flows and financial condition.

• Its may not be able to attract, appoint and retain the company employees, which may adversely affect its business.

• Negative publicity or failures to address customer grievances could damage its reputation and adversely impact the company business and financial results.

• Its investments are subject to market and credit risk. Any decline in value of these investments may have an adverse effect on its business, results of operations, cash flows and financial condition.

• The Company may be exposed or subject to further inquiries regarding its equity capital build-up since incorporation on account of its large shareholder base while being an unlisted company.

• Its insurance coverage may not be sufficient or may not adequately protect it against losses, and successful claims that exceed its insurance coverage could harm its business, results of operations, cash flows and financial condition.

• Its may not be able to obtain, renew or maintain statutory and regulatory permits and approvals required to operate its business, which may materially and adversely affect its business, results of operations, cash flows and financial condition.

• The Company is a public limited company, and in accordance with Section 111 of the Companies Act, 1956 and Section 58 of the Companies Act, 2013, may be unable to impose restrictions on the transfer of Equity Shares by its Shareholders.

• The company Directors, Key Managerial Personnel and Senior Management have interests in the Company in addition to their remuneration and benefits and reimbursement of expenses.

• Any failures, or perceived failure, by it to comply with the applicable regulations on personal information protection could expose it to proceedings and fines which may adversely affect its reputation, business, results of operations, cash flows and financial condition.

• Any non-compliance with mandatory anti-money laundering ("AML"), combating-terrorism financing ("CFT") and know your customer ("KYC") laws could expose it to liability and harm the company reputation.

• The company generally does not own its branch offices. Any termination or failures by the company to renew the lease agreements in a favourable and timely manner, or at all, could adversely affect its business, results of operations, cash flows and financial condition. Moreover, many of the lease agreements entered into by it may not be duly registered or adequately stamped.

• Its ability to pay dividends in the future will depends on its earnings, financial condition, working capital requirements, capital expenditures, restrictive covenants of the company financing arrangements and compliance with applicable laws.

• Its debt securities are listed on the Wholesale Debt Market ("WDM") segment of the BSE Limited ("BSE") and the National Stock Exchange of India Limited ("NSE"), and we are subject to strict regulatory requirements with respect to such listed debt securities. Its inability to comply with or any delay in compliance with such laws and regulations may have an adverse effect on its business, results of operations, cash flows and financial condition.

• Its Promoter is a listed entity and any violation of rules and regulations applicable to listed companies by its Promoter may adversely impact its business, reputation, results of operation, cash flows and financial condition.

• Industry information included in this Red Herring Prospectus has been derived from the CRISIL Report, and any reliance on information from the CRISIL Report for making an investment decision in the Offer is subject to inherent risks.

• The company has in this Red Herring Prospectus included certain non-GAAP financial measures and certain other selected statistical information related to its operations and financial condition. These non-GAAP measures and statistical information may vary from any standard methodology that is applicable across the financial services industry and therefore may not be comparable with financial or statistical information of similar nomenclature computed and presented by other financial services companies.

• Any variation in the utilisation of the Net Proceeds would be subject to certain compliance requirements, including prior Shareholders` approval. Further, its funding requirements and deployment of the Net Proceeds of the Offer are based on management estimates and have not been independently appraised. Its management will have broad discretion over the use of the Net Proceeds.