RAROC profile and corporate credit pricing model derived from Pillar 3 disclosures.
HDFC Bank is a India-based bank with approximately EUR 4.9tn of corporate credit exposure (EAD) under the Standardised approach to credit risk capital. The numbers below come directly from HDFC Bank's most recent Pillar 3 CR6 regulatory filings and are used to model how this bank prices corporate credit facilities.
HDFC Bank is a top-10 corporate lender by disclosed EAD (10th). Its cost-to-income ratio of 40.5% is exceptionally lean (-9.3pp vs the 59-bank cross-section average of 49.8%). The corporate portfolio is predominantly investment-grade, with an EAD-weighted average PD of 1.1% against a cross-bank average of 2.1%.
The bank's Pillar 3 disclosure uses a standardised or jurisdiction-specific framework, which means its reported averages are not directly comparable to EU CRR IRB peers without adjustment. Unsecured LGD disclosed at 45.0% is +8.2pp against the 36.8% cross-bank average, indicating a harder workout profile than the peer median and pushing up capital consumption on defaulted exposures.
On the standardised BBB+ EUR 25M 5-year term loan used across every bank profile, HDFC Bank lands in the lower half of the pricing ranking (#33 of 59), with a RAROC of 7.31% and a minimum spread of 252bp to reach the 12% hurdle. Within India specifically, the bank ranks #1 of 2 on this same calculation.
| Parameter | Value | What it means |
|---|---|---|
| IRB approach | Standardised | How the bank computes risk-weighted assets |
| Cost-to-income ratio | 40.5% | Operating cost share of net revenue |
| Effective tax rate | 25.0% | Applied to RAROC numerator after EL and funding |
| Average corporate PD | 1.10% | EAD-weighted probability of default |
| Avg LGD (unsecured) | 45.0% | Loss share if borrower defaults, no collateral |
| Avg LGD (secured) | 25.0% | Loss share with eligible collateral |
| Funding spread | 15bp | Bank's wholesale funding cost above risk-free |
| Corporate EAD | EUR 4.9tn | Total exposure at default to corporates |
On a representative BBB+ rated, 5-year term loan of EUR 25M at 150bp spread with a 20bp commitment fee, HDFC Bank would generate an estimated RAROC of 7.31% against a typical 12% bank hurdle rate. To hit that hurdle on this exact deal, the bank would need a minimum spread of 252bp. This deal is significantly below target — the bank would either reprice it or decline.
| Component | Value |
|---|---|
| Annual revenue (spread + fees) | EUR 385,000 |
| Operating cost | EUR 154,000 |
| Expected loss (PD × LGD × EAD) | EUR 28,750 |
| Capital required (FPE) | EUR 2,451,320 |
| RAROC (after tax) | 7.31% |
| Min spread to hit 12% RAROC | 252bp |
Out of 59 banks in the OpenRAROC dataset, HDFC Bank ranks #33 by RAROC on this sample deal.
| Rank | Bank | Country | RAROC | Min spread |
|---|---|---|---|---|
| 1 | Qatar National Bank | Qatar | 9.00% | 203bp |
| 2 | DBS Group | Singapore | 8.18% | 224bp |
| 3 | JP Morgan | United States | 8.12% | 231bp |
| 4 | ICBC | China | 8.06% | 233bp |
| 5 | China Construction Bank | China | 8.06% | 233bp |
| 32 | BPCE (Natixis) | France | 7.31% | 252bp |
| 33 | HDFC Bank | India | 7.31% | 252bp |
| 34 | UBS | Switzerland | 7.25% | 254bp |
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