homefinance NewsHDFC Bank chairman foresees cross selling opportunities and profitable housing growth post merger
HDFC Bank chairman foresees cross-selling opportunities and profitable housing growth post-merger
In his first-ever interview since the HDFC twins' merger, HDFC Bank Chairman Atanu Chakraborty tells CNBC-TV18 there is a huge cross-selling opportunity and a lower cost of funds will make housing growth profitable. Edited excerpts here:
In his first-ever interview since the HDFC twins' merger, HDFC Bank Chairman Atanu Chakraborty tells CNBC-TV18 there is a huge cross-selling opportunity and that a lower cost of funds will make housing growth profitable.
Edited excerpts here:
Q: The merger is a big lift for the balance sheet of HDFC Bank, so how would you see the growth panning out over the next five years — what is the growth vision here?
A: With housing as one part of the bank's portfolio, we have been tracking the economy of the country with an efficiency factor of a few additional percentages. Therefore, over the next 5-6 years, you can see this bank growing at a very fair clip across all sectors of the economy; housing as you see is already being added. Then there is MSME, corporate, and the entire retail part which starts with auto to personal loans to two-wheeler loans, and then there is the large priority sector lending which extends from MSME, micro to agriculture to small and marginal farmers. So it extends across the entire gamut of the economy and that is where the growth is coming from because the Indian economy itself is growing at a fair clip and the bank with its extended reach now is able to pick up that entire momentum.
Q: Generally a housing portfolio works primarily on lower interest rates, so no yields — so all-in-all over a period of time. How do you think that this is going to really impact your net interest margins (NIM), so to speak?
A: Actually, that is where the synergies are coming. While already roughly 40 million customers were there with HDFC Limited, unlike the bank they didn't have access to cheaper funds which were the current account, savings, and so on and so forth. The bank through its very large branch network which is also very efficient and captures a very large part of the system's deposit and savings in the country is able to garner its funds at a much lower rate and that's what makes the growth of housing not only possible but also grow at a much faster rate and also on good margins. I will not get into the number, but that cheap fund does bring in the right kind of margin because the mortgage market is very sensitive to the cost of funding.
Q: So you actually expect the NIMs to be on the healthier side, especially with the housing market coming in in full force because so far we have not been hearing about the bank much in terms of mortgages. HDFC has been the big pioneer, the big brand as far as the mortgage market is concerned.
A: HDFC pioneered the mortgage market in the country and it did it all along and did fantastic work.
Q: Also the other thing that people want to know is that the customer base is going to be a huge benefit from this merger. So what are the opportunities for you in terms of cross-selling products to HDFC customers?
A: As of now, roughly 30 percent of 40 million of them are customers of the bank, so 70 percent straight away offer themselves as possible customers and the bank can offer them many other products on the personal loan side, on the retail side, many of them may have business interests and then there are subsidiaries in insurance, in mutual fund and so on and so forth. So there again, the distribution takes place. So there's a very strong cross-sell and distributive part. But the synergies don't end there, that is on the business layer. The synergy is also on people, getting very talented people into the organisation itself is a huge synergy.
There is a synergy in terms of knowledge and processes, and handling of customers. HDFC’s handling of customers has been par excellence and I guess that is something that will continue in its new format inside the bank also. And of course, a new set of shareholders are getting added on, and the subsidiaries. So therefore, not only on the business front, as far as the product is concerned, but also across various facets of the organisation it is a very, very highly synergistic coming together.
Read Here | We could be creating a new HDFC Bank every 4 years, says Sashi Jagdishan in letter to employees post merger
Q: But doesn't this also have its own set of challenges, like for instance, the HR integration, and any other thing that you think about, though, of course, this has been well thought out? You had first initiated it in April 2022 and it has come to a conclusion so to speak. But any challenges that you also foresee?
A: We had teams at two levels, one who was handling the regulatory and legal part and a team of very senior management people from both sides who were looking after integration across 30 areas, and headed by two directors from both companies. They went through the entire rigmarole of each and every part of integration and it has been a long year, and they really burned midnight oil there. And you are absolutely right about the HR systems, culture, and governance, these are key to whenever two organisations come together. The culture of these two organisations is very similar. They both swear by governance and they are very, very systems driven and the bank also brings its own systems in terms of its credit culture, which is exceedingly good, as you know, and so was HDFC. Certainly, people I mentioned 4,000 extremely talented people and the bank intends to see that they are very well taken care.
Q: Just going back to the heavy lift that your balance sheet has got now with this merger, how do you plan to take on the competition in this market? It's a cutthroat market and you have acquired this massive edge now so you are inching towards the big, the big daddy in the market. And of course, you have other private competitive peers right behind you. So how do you see this over the next two to three years?
A: I see this very, very differently. Let me start with housing. In India, housing is just 11 percent, and mortgages are just 11 percent of GDP. China or Southeast Asia is about 20 percent, Western countries are about 60 percent. It is a very underpenetrated market, despite the fact that you see a lot of hoardings around, it can only go up as the growth rate is going up. As you know, we are moving and moving at a good pace towards a $5 trillion economy. The government has built up a huge amount of urban and semi-urban infrastructure, which is also catalysing the demand for housing. So, this is one sector that is going to grow and I guess there is space for everybody out there.
Now, when the housing and construction sectors grow, they become huge employment generators. So they would generate demands, first, they would generate savings and liabilities as deposits are known. So, the bank gets a chance to channelise those savings into the economy and then use them for further funding and fuelling the credit growth. As I said, be it the corporate side, be it MSMEs, be it agriculture, or the personal retail loans of various denominations. Therefore, I don't see competition per se, I see opportunities there with the way things are and the way the engine is now very well set with the mortgage piece along with insurance and AMC, etc. are also brought in so that customer’s multifarious needs are met under more or less one roof because of the distribution power of the bank.
Q: And you are not too large, that's not a concern?
A: The bank is considered systemically important. But as one sees banks can only be as large as the economies are. Therefore, while it has huge value, its size has to grow, and it has to cater to the credit growth in the country. And in that term, it will only grow larger by the year.
Q: You mentioned MSME, agriculture, and all, in terms of priority sector lending, there are certain stipulations that have come out from the Reserve Bank of India. So you think that you will be able to meet that and that's going to go as per the roadmap that has been indicated?
A: There is a standard stipulation for every bank. Whereas the same stipulations weren't there for HDFC Limited, to a very large extent they were brought pretty close, therefore, certain dispensation has been given by RBI, and they have provided us a roadmap to it and we should be able to meet it.
Q: HDFC Bank, in terms of branch network, has been fairly active in the last few years or months, you can say that, but digital is a new way now. So how are you going to look at it? Is it going to be a focus via the digital reach or you are going to have this pan-India branch expansion?
A: I think these things tend to go together, so while we add certain branches straight away with HDFC and, well, I will avoid numbers because it's also a silent period, and numbers tend to change almost a branch gets opened every day. There are 8,000 plus branches, which is already in place 8,200 odd branches which are already in place, and getting added every day. However, it is very important to make use of digital to make the journey easy, and digital across whether it's on the liability side that is getting the savings in or when people use the product to make their payments and that is a challenge, let me put it this way. Because technology is changing every day, the expectation of people is changing on a daily basis and there are fintechs who are also challenging banks, and one has to ensure that we co-opt them in the process of reaching out to people. Therefore, both digital as well as the physical part of the banking system have to go step by step to ensure that the banking services reach the remotest place and to the last person.
Q: In terms of the repricing – the lag timing for the repricing of your retail book, for example, there is a shift of loan mix towards the retail MSME segment. What sort of impact do you expect on margins, at least in the near term?
A: Originally, the bank during the pandemic — because we could not reach out on the retail side — was slightly more than in favor of the corporate book and had become heavier. With mortgage coming in and retail also picking up I guess that thing would be corrected and would ensure that automatically, the retail versus wholesale mix gets taken care of because it was already built in favour of wholesale during the pandemic. That in a sense provided us with a good platform to do, carry it out otherwise we might have to do a little bit more wholesale. The bank remains a universal bank, would provide and cater to the wholesale banking needs of the corporates, big corporates, mid corporates, smaller companies, MSME, construction finance, then towards housing, retail financing, and the entire gamut of priority sector.
Q: Just a one small bit on the pricing of home loans especially, so now that it's part of the bank and the entire network is part of the bank, how competitive are you going to be in terms of your interest rates or pricing of loans?
A: Watch out for the growth and you will see the bank being able to provide competitive finance to those prospective homebuyers with a very good, comfortable journey. It's very important that people who come – buying a house in India is a one-time activity. And people put their life savings into it. So it's really important that they have faith, they have trust in the financial institution.
Q: It is also an emotional decision.
A: Absolutely. And the bank is going to provide that journey, which will ensure that people are happier after buying. That's very important.
Q: So this is going to be driven as per market and signals from the Reserve Bank of India or do you think that the merger itself can lead to some kind of relief for customers, so to speak?
A: In a sense, the way it is actually driven by the interest in the economy, and the way it's panned out, based upon how the Reserve Bank of India sees the interest rate regime in the country. So housing is just a subset of it.
Q: So at the moment there is a pause, but what are the expectations from the banking sector? Do we expect this pause to continue or inflation numbers could be higher in H2?
A: We have seen the assessments by RBI itself. It shows the inflation to be sort of easing up. However, in the fiscal stability report, it has also alluded to the lack of growth globally, as well as sticky core inflation globally. So I guess those are the concerns RBI itself has expressed, so we need to be mindful of that. Otherwise, I guess, there is a likelihood of further easing on inflation. Unless there is something, some events which do cause.
Q: Right but the interest rate relief could be much later.
A: We will have to wait for the RBI action for that.
Q: How are you going to handle the HDFC deposit holders? How is this transition going to work out? What is it you're telling them?
A: They will be handled as the prime customers of the bank. They become fixed deposit holders hereinafter and they will be continued to be serviced from the respective branches from where they were serviced. For them, there wouldn't be a change in the day. It's the same thing which continues.
Q: But there will be an interest rate differential? So will you be able to attract them to the bank?
A: Fixed deposits and the other public deposits sometimes had a differential. However, they get far more flexibility when they come to the bank and start banking and start putting money in NFTs and other such deposits.
Q: So you're hopeful that a large chunk of them will stay with the bank?
A: Yes, they will all remain with the bank.
Q: So the kind of board structure that you have now at HDFC Bank, what kind of strength is it? How do you look at it right now, especially amidst your private sector peers?
A: From HDFC Limited, Mr Keki Mistry and Mrs Renu Karnad very kindly consented to come on board. And also we have recommended that the RBI bring as a whole-time director Mr VS Rangan so that the board strengths of HDFC are brought in. The existent strength of the board of HDFC Bank, which is driven by the RBI requirement of people from specific fields, like you need a director who represents expertise in agriculture, you need a director who represents a field in finance and payments and banking, you need a director who requires to be from MSME sector. So, the directors represent those particular fields and their expertise - very eminent people, very knowledgeable, and about that extremely hardworking, being on board a bank calls for lots of work, giving long hours and lots of work and the entire board is an excellent board, which not only provides insight, but is also willing to work very hard on that.
That's what makes this and then on the senior management team, I have Mr Sashi Jagdishan, who is the CEO, ably leading his team of Mr Kaizad Bharucha, Mr Bhavesh Zaveri, - who are the other existing whole-time directors, so, and of course, rest of my senior management team, which is extremely talented and very hard working and above all very motivated and very sensitive to the requirement of customers.
Q: So most of the founding members of the parent HDFC are going to be on the bank board?
A: Of course, Mr. Deepak Parekh, who had actually led the entire journey, created the bank, it is his creation as well of sorts, his thought process. He on account of age cannot be on board of the bank, but I am sure everybody can go and seek his advice once in a while if at all he finds time for that. He has over these years been endowing in the field of finance and he created this entire panoply of organisations which have made the country proud.
Q: What are the challenges that you foresee, in the next one to two years for the banking sector, as such? Public sector banks have pulled up their socks to a great extent. But in many ways, the private sector is kind of far ahead. What are the challenges did you foresee on the macro side also global headwinds as of now, and also what we need to do to actually perk up India's banking sector or rather take it to the next level anything specifically, that you be telling the government or in any kind of interaction with the GoI at some point in time?
A: The banking sector in India if you ask me today is in the pink of health. The NPA is one of the lowest you have been tracking this so you would know. They are now able to lend aggressively, they are in a position to meet the growth impetus in the country. So, I see that as a big positive. Private sector banks already are very well capitalised.
Maybe in the public sector, they need to improve their capitalisation. If you ask me for something one needs to do as their capitalisation if it improves, whenever the business cycles hit and it hits every bank they can manage it much better and then the job is to push growth.
There are global headwinds today, there is globally a deceleration of growth. But India has weathered that, and has kept its growth up. The government has been putting a lot of capex in. Therefore meeting those requirements for finance would be a critical factor. And, of course, one big challenge always remains as to how the long-term debt market develops in the country. Its largest biggest challenges as to how the bond market develops and how bank play their roles in that. It would be one piece that will always remain because of the bond market develops well, banks will find it easier to fund infrastructure, because the exit is easy and that is very critical.
First Published: Jul 4, 2023 1:53 PM IST
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
EVM row: Meet Ravindra Waikar, Shiv Sena MP at the centre of controversy
Jun 17, 2024 1:26 PM
EVM unlocking controversy in Mumbai North West Lok Sabha seat — What we know so far
Jun 17, 2024 10:25 AM