Two decades back, the merger of a development financial institution and a bank–ICICI and ICICI Bank–faced significant challenges, expected given the size of the entities involved . Strict regulatory demands, including the cash reserve ratio (CRR) and statutory liquidity requirements (SLR), posed complications and the banking regulator was not willing to grant any forbearances. The economic landscape and corporate finances were also undergoing recovery.
Now, in a reminiscent situation, newly-minted banking behemoth HDFC Bank also has similar issues to grapple with but appears to be fairly well positioned as of now to execute its merger with the erstwhile mortgage lender, HDFC. It is not just the latest quarterly numbers and the growth in both advances and deposits but the organisational rejig which it has undertaken this week that underlines the growth plans ahead.
HDFC Bank has divided its retail loan operations into mortgage and non-mortgage categories, with designated group leaders for each. This move is strategic given the bank’s sizable home loan portfolio post-merger and its team’s deep understanding of the Indian mortgage market. With many banks now eyeing this stable segment, backed by strong collateral and minimal bad assets, the timing seems right.
At the start of this year, over 90% of the bank’s 80 million-plus customers hadn’t availed of a home loan, presenting a potential profit avenue. Similarly, many previous HDFC home loan customers, now under the umbrella of the merged entity, hadn’t maintained a prior banking association with HDFC Bank. This again is a huge opportunity which when tapped could bolster the low-cost deposit base of the lender. For the quarter ended September 30, the bank reported a 115 % year-on-year jump in retail assets, a reflection of the potential growth.
These low-cost deposits will be crucial for HDFC Bank, considering the impending annual debt obligations of HDFC Ltd. and its own growth requirements. The bank seems on course, despite potentially higher deposit mobilisation costs. Driving growth over the last few quarters also has been the pace of branch expansion, especially in the hinterland and tier 3/4 cities and beyond.
Coupled with that has been the focus on small-and-medium business – again with an eye on acquiring retail assets and to mobilise deposits. The SME sector, traditionally dominated by state-owned banks, is now seeing competition from aggressive private banks. HDFC Bank has notably amassed a substantial SME portfolio while retaining premier Indian corporate clients.
The surge in retail loans, particularly home loans, should reassure HDFC Bank. Compared to their previous quicker loan turnovers, home loans offer extended stability. The segment holds vast promise in an economy projected to grow over 6% annually in the forthcoming years.
Over the last three decades, HDFC Bank’s rise to one of the world’s most valuable lenders in market capitalization is attributable to its managerial prowess, effective systems, and execution skills. This is evident in its over $100 billion market valuation and its significant presence in key domestic indices.
Undoubtedly, immense expectations rest on HDFC’s management, especially under the leadership Sashidhar Jagdishan, successor to the ‘safe-pair-of-hands’, Aditya Puri. The challenge lies in maintaining the bank’s historical stability amid economic fluctuations while navigating this merger.
