The debenture, which is yet to be valued, will be for a period of 5 to 7 years, Suresh Amarasekera, general manager and chief executive officer of HDFC, said.
"We hope to issue it in the first quarter of 2010," Amarasekera said.
HDFC is a licensed specialised bank, 51 percent owned by the state and limited to providing housing finance and related services. Sri Lanka's interest rates have been volatile in recent years, exposing long term lenders to severe rate risk.
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Over 88 percent of the bank's loan portfolio of 13 billion rupees, have been given to low and middle income customers.
The bank's specialised license and relatively smaller branch network has restricted its ability to compete with larger commercial banks for low cost funding.
"Our challenge this year is to manage our cost of funds. We need to restructure our funding and find the right type of instruments to do this," Amarasekera said.
The bank has also moved into children's savings accounts, where deposits are locked in until till the account holder is 18 years old. "We hope to sign up 50,000 accounts this year," Amarasekera said. "There are an estimated 5 million children between 1-12 years in Sri Lanka and capturing even 1 percent of that will be substantial."
On Thursday, HDFC launched announced an account branded Arumbu, or bud, targeting the country's Tamil speaking community.
The bank also hopes to open four new branches in Vavuniya, Jaffna, Trincomalee and Mannar this year, adding to its existing branch network of 26.
Though an effective rate was not disclosed the banks says parents who deposit between 100 rupees to a maximum of 5000 rupees over 2-5 years can expect a return of 4-5 times the initial deposit, when their child turns 18.
HDFC group posted a 5.8 million rupee loss in the last quarter of 2009, over a 94.
8 million rupee loss the previous year.
Group profits for the first nine months of 2009 showed a recovery to 82.
8 million rupees when compared to the 153.5 million rupee loss in 2008.
The recovery was led by a decline in interest rates in the third quarter of 2009 and improved recoveries that has seen its nonperforming loan ratio reach 9 percent as at end December 2009, from 12 percent levels the previous year.