Sasidar Jagdishan, MD and CEO, said HDFC Bank has achieved credit deposit ratio faster than expected due to slow system credit growth and slower than industry average loan growth strategy. He said there would be an opportunity to raise it.
“We are going to reduce the CD ratio faster than we have anticipated in the past. In terms of credit growth glide path, we will probably see slower growth than the system in FY25. It could be at or near the growth rate and should exceed the system growth rate in FY27,” MD and CEO Sasidar Jagdishan said in a call with analysts. said, adding that regulators’ comments suggest that system loan growth will converge on deposit growth during this period.
“Over the next two to three years, there may be a confluence of changes in the credit environment. We have seen stable asset quality, so when the virtuous cycle changes over the next two to three years, we are likely to “We want to be in a good position to capture the incremental growth that we’ve seen in the past year. That’s one of the reasons we’re accelerating the reduction in loan-to-deposit ratios,” he added.
Chief Financial Officer Srinivasan Vaidyanathan said the bank had previously predicted it would take four to five years for LDR to reach historical levels of the “mid to late 80s.” He said he now sees an opportunity to achieve this in two to three years.
The bank’s CD ratio has jumped to 110% from 86-87% earlier after the merger with its erstwhile parent company HDFC Ltd with effect from July 2023. Currently, the ratio is approximately 100%.
HDFC Bank aims to increase growth rate of deposits rather than loans
To improve the CD ratio, HDFC Bank has been pushing for higher growth rate of deposits compared to loans. Vaidyanathan emphasized that it is economically better to fund credit with more deposits and less borrowing, with the share of debt in financing dropping from 21% immediately after the merger to 16%. He said he did. Before the merger, the debt ratio was approximately 8%.
“We still have a ways to go to keep this coming down, and it won’t happen within a year,” Vaidyanathan said, adding that the goal is to get the CD ratio down to “the low 80s as soon as possible.” .
Vaidyanathan said the bank’s market share on the debt side is 11% but on the distribution side only 6%, meaning its deposits are twice its distribution capacity. He said deposit growth was around 15-18% and the bank had benefited from a gradual market share of 50-70 basis points over the past three to five years. He added that the bank expects to continue gaining market share at this pace as liquidity conditions begin to normalize.
The bank’s deposits rose 15.1% year-on-year to 25 trillion rupees as of September 30. Current and savings accounts (CASA) deposits increased by 8.1% and accounted for 35.3% of total deposits. Management said the 19.3% increase in term deposits reflected consumer expectations that interest rates would be cut soon.
credit growth, quality
Mr. Jagdishan said that although the bank’s consumer spending has increased, it will take some time to reflect on the books as the bank looks to maintain this momentum over the next 12 to 18 months.
“But we definitely need to be ahead of the curve and get the right customer segment at the right price for the future. We are paying very close attention to what is happening,” he said. .
Total advances increased by 7% year-on-year to 25.2 trillion rupees as of the end of September. Personal loans increased by 11.3% and commercial and rural bank loans by 17.4%. Corporate and other wholesale loans decreased 12.0%. Overseas advances accounted for 1.7% of total advances.
Given the competitive pricing in this sector, growth in the wholesale segment is expected to continue to slow. The highly granular long-term pricing by PSU banks particularly constrains the ability of private lenders to raise interest rates in this space, as the ripple effect of the RBI’s 250 bps repo rate hike is much lower compared to bond market spreads. Vaidyanathan said. The bank’s wholesale loan portfolio declined 2.8% quarter-on-quarter.
The largest private sector financial institutions have also embarked on three- to five-year strategic initiatives for loan securitization. It sold secured transfer loans worth Rs 19,000 crore in the second quarter, taking total loan securitization to Rs 25,000 crore in the last two quarters, mainly in the home loans segment.
“(This is) true for mortgages where we are more concerned with customer relationships than with balance sheet growth. So balance sheet lightness is the right model, even if products need to be packaged into securitizations.” We are OK with that,” he said, adding that this will be expanded in the coming years, especially in the mortgage sector.
Jagdishan believes this cautious credit growth is good for banks given the new credit quality scenario. Growth in unsecured loans to banks slowed to 9-10% from 10% in FY24 and 19% in FY23. In comparison, industry growth slowed to 21% in FY24 from 28% in FY23.
“Over the last few years, we have adjusted our growth based on early indicators. Our credit structure has been good and we are in a very comfortable position today,” he said. , added that while there were risks to the system, he was “not too concerned” about the quality of the assets. .
The gross non-performing assets (NPA) ratio was 1.36% as of September 30, slightly worse than 1.33% a quarter ago and 1.34% a year ago. The net NPA ratio was 0.41%.
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