HDFC, the country's largest mortgage lender, plans to exercise the warrants issued by HDFC bank into equity. After the conversion HDFC's share in the bank would rise to almost 24 percent.

An HDFC spokesperson said "Yes, we will exercise these warrants. Based on the current capital base of HDFC Bank, our stake in HDFC Bank will be around 23.8 per cent." HDFC presently holds a stake of 19.29 percent in HDFC bank.

The warrants were issued to HDFC in June last year during the merger of HDFC bank and Centurian bank of Punjab to enable HDFC in maintaining share in the merged entity.

HDFC received 26.2 million warrants at Rs. 1,530.13 per warrant on a preferential basis amounting to Rs. 4,000 crore. HDFC was required to pay 10 percent of this amount , that is, Rs. 400.9 upfront and the rest of the amount till December 2 and convert the warrants into equity.

The bank's capital adequacy ratio (CAR) was 15.7 percent at the quarter ending September 2009. the CAR will increase above 17 percent , once the capital from warrant conversion is realized.

According to Pralay Mondal, country head, retail assets of the bank, the pick up in demand can be attributed to several steps taken by the government in order to contain the ill effects of the global meltdown.

The bank expects that its retail loans would grow faster than the industry and expects a considerable business to come from non-metros.