Aditya Puri, managing director of HDFC Bank—the country’s second largest private bank—exudes a confidence that reflects the bank’s current financial position. As it expands into India’s hinterland, the bank is relentlessly pursuing the objective of financial inclusion and self-sustainable livelihood for millions of people.
Today, HDFC Bank is seeing a 20 to 25 percent growth in its rural India operations, and more than 55 percent of its 3,403 branches are in semi-urban and rural areas. Its balance sheet size rose 22.8 percent to Rs 4.91 lakh crore as on March. Deposits are up 24 percent at Rs 3.67 lakh crore, of which current and savings account (CASA) deposits constitute 44.8 percent.
Slackening economic growth, however, has affected HDFC Bank’s last quarterly earnings: It reported a 23.1 percent growth in net profit for the January to March quarter—Rs 2,326.5 crore—which, analysts say, is its slowest in a decade.
In a chat with Forbes India, Puri, who has headed HDFC Bank since 1994, talks about its core strengths, its correlation with GDP growth, the impact of new private banks and its strategy for future expansion. Excerpts:
Q. What is the outlook for next year, as the bank continues to grow?
Our portfolio is not under any strain; margins are intact, our net non performing assets (NPAs) are negligible at 0.3 percent, and we have no problems in restructured loans. The bank’s capital adequacy is at 16.1 percent.
We are the only bank to have gone in a big way in the semi-urban and rural areas [where 70 percent of India’s population lives]. We have put in the best technology in virtual banking, and now—like Wells Fargo—have created a system where, whatever you can do physically, you can do virtually.
Due to this, we have the fastest turnaround time: One can apply for a loan and get an approval in 15 minutes and a disbursal in four hours. We have data warehousing, analytics, customer relationship management systems, repository of documents, outbound call centre and a strong online presence through net banking.
We are a leading bank in almost all products we participate in—auto and personal loans, credit cards, loans against gold, agri-loans, tractors, cash management, currency operations and corporate banking. We have doubled our distribution in the last three years. So we have no problem for a long time to come.
Q. There is a slowdown in the economy and yet your NPAs are under control. How has your bank managed this?
We are the only bank that straddles the diversity of the economy. As our economy is consumption, investment and government [led], we are the only bank that lends over 50 percent to the consumer goods sector. So if the economy grows, we will grow.
We have a very clear target market, we have no fix (that we must grow at a particular rate). We will grow at the rate that there is demand in the segment and of a credit type, and at the rate at which we earn enough to provide both a return on capital and for the delinquencies which will come.
We constantly monitor our portfolio, our credit and business teams don’t report to each other, so there is good constructive tension. We don’t see any reason to take unnecessary risks to grow, because demand continues to exceed supply.
Q. But what about problem sectors, like aviation?
So, we do not lend to aviation. We are in project lending; we have lent to power, to large new projects in aluminium. We are not tied in to, or stuck to, a particular growth rate. We will grow within the credit parameters set by us, without sacrificing our risk-return criteria.
Q. So the risk-return criteria is critical to your growth plan.
With our risk-return criteria and our target market, there is enough growth [even with the slowdown]. The penetration of organised finance in semi-urban and rural India is eight percent. Just substituting the unorganised [market] and moneylenders is enough for us, as we come with a better product.
Q. The semi-urban and rural sector is a key growth area for your bank. What are the things you are doing there?
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(This story appears in the 13 June, 2014 issue of Forbes India. To visit our Archives, click here.)