'Not apologetic about merger': HDFC Bank's Sashidhar Jagdishan says lender going through 'adjustment'

HDFC Bank's MD and CEO Sashidhar Jagdishan said the lender was "not apologetic" about the merger, despite the challenges that have emerged. 

Jagdishan acknowledged the bank was undergoing an "adjustment phase," but expressed confidence in a "break out" once this period is over. "The adjustment will take a little bit of time before we can sort of break out as we have done in the past," Jagdishan told shareholders at the bank’s annual general meeting. He noted that the merger, announced in April 2022, was made under the assumption of a stable economic environment. 

However, the situation quickly changed with the Reserve Bank of India (RBI) raising the repo rate by 40 basis points just a month later, initiating a series of hikes totaling 250 basis points.

These rate increases, driven by global inflationary pressures and the fallout from the Ukraine conflict, have tightened liquidity, raising the cost of deposits for banks. This has hit HDFC Bank particularly hard, as it had to raise deposits not only for growth but also to cover the expanded asset base from the merger. "So today, whatever we are, it will be different from what we had anticipated at the time of the announcement of the merger," Jagdishan admitted.

The CEO also pointed out a shift in consumer preferences, with more individuals gravitating towards mutual funds, equities, and real estate. In response, the bank is ramping up its branch expansion to boost deposit growth, which Jagdishan emphasized should surpass credit growth. 

"It is in the economic interest of the institution to try and ensure that the deposit growth is much greater than the credit growth," he said.

As the bank adjusts to the new realities, Jagdishan noted that its credit deposit ratio, currently at 104%, needs to be brought down. Despite the immediate challenges, he reassured shareholders that the long-term benefits of the merger will outweigh the short-term difficulties. Echoing this sentiment, HDFC Bank Chairman Atanu Chakraborty described the merger as one of the most significant and complex in Indian corporate history, reinforcing the bank's pathway to future growth.

Jagdishan also highlighted a positive development in the bank’s internal dynamics, with the employee attrition rate dropping to 27% in FY24 from 34% in the previous year.