Chinese Central Bank Increases Equity Position in India’s Largest Private Sector Mortgage Lender, Amid COVID-related Market Decline

On April 12, the People’s Bank of China increased its stake in India’s largest private sector mortgage lender, HDFC Ltd., from 0.8% to 1.01%.  The acquisition was made during the March 2020 quarter ending, amid a significant decline (by 25%) in the share prices of the lender due to the coronavirus pandemic. According to HDFC’s chairman, the Chinese Central Bank bought the stake on behalf of Beijing’s sovereign wealth fund, State Administration of Foreign Exchange (SAFE).

Whereas, other foreign funds such as Singapore’s state-controlled Temasek and the Abu Dhabi Investment Authority also have existing equity in the mortgage lender, media reports indicate that the Indian central government has raised concern with HDFC for failing to raise a “red flag” over this most recent Chinese transaction. New Delhi has previously raised alarm over China’s presence in the financial sector, when, in 2017, the central government denied security clearance to the Bank of China, disrupting the Chinese lender’s plans to open a branch in India. Despite scrutiny in New Delhi, there remains a regulatory disconnect in flagging security-minded investment risk in India’s private sector. 

Notably, India’s Economic Times speculated earlier in the month that Chinese-backed funds are seeking to acquire Indian financial assets following the COVID-10 outbreak. According to the ET, the Industrial and Commercial Bank of China (ICBC) and China Investment Corporation have asked Chinese lenders to “scout” for good investment opportunities in the Indian financial sector, with the intention for deploying some $600-$650 million in this space.  In November 2018, ICBC established a $200 million fund to invest in India micro, small, and medium enterprises, which it has since utilized to buy stakes in small Indian companies.