Best In Class
The bank has been using the developments in the digital world to streamline operations. It has been investing a lot in data warehousing, social media linkages, data analytics and mobile-based innovations.
- Feb 6, 2016,
- Updated Feb 6, 2016 4:03 PM IST
Aditya Puri, 65, often borrows the concept of "C+I+G" from economics to explain the state of affairs at HDFC Bank. The longest-serving CEO of any bank in India says 'C', that is, consumption (I is investment and G is government spending) is something his bank depends heavily on, as more than 50 per cent of its book is accounted for by retail and consumer businesses.
"Things which used to take days or hours now take minutes or seconds. We have stemmed the tide of disrupters"
As part of this, the bank has, of late, been single-mindedly focused on breaking into rural and semi-urban areas, which account for 60 per cent of India's population. "Our more than 55 per cent branches are in rural and semi-urban geographies," says Puri, using this to make a point that HDFC Bank's balance sheet is reflective of the country's economy. And, this is precisely why Puri is hoping that India's gross domestic product, or GDP, growth does not slow and remains at least 7.5 per cent this year. "This is on the back of two failed monsoons. Let's hope we never get three failed monsoons," says Puri, though he is confident about HDFC Bank as it has for years been growing at three-four times the GDP rate.
"Many of our past decisions are helping us," says Puri, sitting in the boardroom at the 5th floor of HDFC House in central Mumbai. For the past six years, difficult for the economy as a whole, the bank, which Puri has built from scratch over the past 21 years, has been expanding its loan book at 20-25 per cent and revenues at 20 per cent, though profit growth has of late come down from 30 per cent to 20 per cent. Its numbers, especially the asset quality, have no parallels in the country's banking industry.
The bank has a strong liabilities franchise. Its deposits have been growing at more than 20 per cent a year. The slowdown in the economy and competition for the low-cost current and savings account (CASA) deposits from new generation private sector banks is impacting the established players. The bank's CASA deposits have also not moved up from the mid-40 per cent range for the past five-six years. CASA is a source of low-cost funds for banks. A high CASA number indicates high margins and profitability. One of the reasons for CASA not improving is also the high proportion of fixed deposits, especially foreign currency deposits, raised after September 2013, when Reserve Bank of India Governor Raghuram Rajan had opened the window to stem the depreciation of the rupee. The banking sector had mobilised over $30 billion through this window.
The bank, however, has a different take on this. "CASA is going up in absolute terms. In fact, our CASA market share has gone up by 15-20 per cent," says Sukthankar. Analysts say if the country's economy deteriorates and competition from payments and small finance banks intensifies, the decline in CASA as a proportion of total deposits will hit the bank's cost of funds. "There is going to be a fight for CASA when the new banks are operational," says an analyst. Sukthankar, however, says the market is big enough.
The second challenge is the high cost-to-income ratio of 0.45 per cent. The figure for ICICI Bank is 0.37 per cent. The bank says this is due to its bigger retail portfolio. "There is high transaction intensity in retail because of smaller loan sizes," says Sukthankar. The other reason is the huge investments the bank has undertaken in branch expansion and digitisation. "We should gain in terms of cost in the next three-five years as digital banking picks up. Our proportion of digital transactions is growing in a big way," says Sukthankar. Puri believes the reasons for the high cost-to-income ratio are not bad per se as "consumer or retail businesses also generate higher earnings and margins".
Lastly, banks will always be exposed to people, governance, fraud as well as technology risks. A frank Puri says cyber security risk will always remain a major concern. "The only way to safeguard oneself is putting up more checks and balances," he says. In fact, the bank was recently under the lens of regulators for violation of KYC norms and anti-money laundering guidelines after a media expose that entangled some other banks too. "You can never eliminate people fraud. Technology is not God. No management system is God. So, it is wrong to presume that frauds will go away just because you have gone hi-tech," he says.
Aditya Puri, 65, often borrows the concept of "C+I+G" from economics to explain the state of affairs at HDFC Bank. The longest-serving CEO of any bank in India says 'C', that is, consumption (I is investment and G is government spending) is something his bank depends heavily on, as more than 50 per cent of its book is accounted for by retail and consumer businesses.
"Things which used to take days or hours now take minutes or seconds. We have stemmed the tide of disrupters"
As part of this, the bank has, of late, been single-mindedly focused on breaking into rural and semi-urban areas, which account for 60 per cent of India's population. "Our more than 55 per cent branches are in rural and semi-urban geographies," says Puri, using this to make a point that HDFC Bank's balance sheet is reflective of the country's economy. And, this is precisely why Puri is hoping that India's gross domestic product, or GDP, growth does not slow and remains at least 7.5 per cent this year. "This is on the back of two failed monsoons. Let's hope we never get three failed monsoons," says Puri, though he is confident about HDFC Bank as it has for years been growing at three-four times the GDP rate.
"Many of our past decisions are helping us," says Puri, sitting in the boardroom at the 5th floor of HDFC House in central Mumbai. For the past six years, difficult for the economy as a whole, the bank, which Puri has built from scratch over the past 21 years, has been expanding its loan book at 20-25 per cent and revenues at 20 per cent, though profit growth has of late come down from 30 per cent to 20 per cent. Its numbers, especially the asset quality, have no parallels in the country's banking industry.
The bank has a strong liabilities franchise. Its deposits have been growing at more than 20 per cent a year. The slowdown in the economy and competition for the low-cost current and savings account (CASA) deposits from new generation private sector banks is impacting the established players. The bank's CASA deposits have also not moved up from the mid-40 per cent range for the past five-six years. CASA is a source of low-cost funds for banks. A high CASA number indicates high margins and profitability. One of the reasons for CASA not improving is also the high proportion of fixed deposits, especially foreign currency deposits, raised after September 2013, when Reserve Bank of India Governor Raghuram Rajan had opened the window to stem the depreciation of the rupee. The banking sector had mobilised over $30 billion through this window.
The bank, however, has a different take on this. "CASA is going up in absolute terms. In fact, our CASA market share has gone up by 15-20 per cent," says Sukthankar. Analysts say if the country's economy deteriorates and competition from payments and small finance banks intensifies, the decline in CASA as a proportion of total deposits will hit the bank's cost of funds. "There is going to be a fight for CASA when the new banks are operational," says an analyst. Sukthankar, however, says the market is big enough.
The second challenge is the high cost-to-income ratio of 0.45 per cent. The figure for ICICI Bank is 0.37 per cent. The bank says this is due to its bigger retail portfolio. "There is high transaction intensity in retail because of smaller loan sizes," says Sukthankar. The other reason is the huge investments the bank has undertaken in branch expansion and digitisation. "We should gain in terms of cost in the next three-five years as digital banking picks up. Our proportion of digital transactions is growing in a big way," says Sukthankar. Puri believes the reasons for the high cost-to-income ratio are not bad per se as "consumer or retail businesses also generate higher earnings and margins".
Lastly, banks will always be exposed to people, governance, fraud as well as technology risks. A frank Puri says cyber security risk will always remain a major concern. "The only way to safeguard oneself is putting up more checks and balances," he says. In fact, the bank was recently under the lens of regulators for violation of KYC norms and anti-money laundering guidelines after a media expose that entangled some other banks too. "You can never eliminate people fraud. Technology is not God. No management system is God. So, it is wrong to presume that frauds will go away just because you have gone hi-tech," he says.