The stage is set for the country's top two private banks to test their skills in pursuit of market share. After consolidating its balance sheet for 18 months, ICICI Bank now plans to be more aggressive, while HDFC Bank is in no mood to allow its bigger rival regain lost market share.
The current macro-economic situation is similar to the economic crisis of 2008. If it was the collapse of US' fourth-largest investment bank, Lehman Brothers, which triggered the biggest financial crisis of the decade three years back, Standard & Poor's decision to downgrade US' sovereign rating by a notch last week has intensified fears of another economic storm now.
Unlike the last time, the country's largest private lender, ICICI Bank, is now firm on growing its deposits and advances. While most Indian banks say their loan books narrowed sequentially for the quarter ended June 30, ICICI was one of the few lenders that reported growth in advances.
"We will continue to improve the quality of our earnings and balance sheet. While the industry is expected to face headwinds on margins, we expect to maintain our net interest margin at the current 2.6 per cent this year," Managing Director and Chief Executive Officer Chanda Kochhar said, while announcing the bank's earnings last month. For 2011-12, the bank has set a target of 18-20 per cent credit growth.
HDFC Bank, the second-largest private lender in the country, also has no plan to take its step off the gas in expanding its business. The bank, known for its consistent earnings performance, aims to grow its balance sheet at a higher rate than the industry.
"Fortunately, the bank is in a situation in which demand exceeds supply. If GDP (gross domestic product) grows at eight per cent and the credit multiplier is two and half times the GDP, credit growth for the system would be 19-20 per cent. We will gain a couple of hundred percentage points more than the system. We have been gaining market share continuously," Aditya Puri, managing director of HDFC Bank, told Business Standard in an interview in May.
There is, however, dissimilarity in the growth ambitions of the two banking giants. For ICICI Bank, balance sheet expansion would primarily be on the corporate segment, as the bank is still selective in offering unsecured loans to its retail clients. HDFC Bank, on the other hand, has chalked out its growth targets mostly around its retail customer base. The lender has been disbursing Rs 5,000 crore of retail loans every month in the April-June period, which it claims is the highest in the industry.
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The bank has also moved away from its traditional practice of offering credit cards to its existing clients. Currently, HDFC Bank's first-time clients who have been offered credit cards, account for 25 per cent of the card base, compared with 10 per cent a year ago. The lender also aims to compete with American Express Card and has launched the 'Infinia' credit card for the ultra rich high networth community in India.
Despite their divergent focus, both banks are not willing to give each other space in other businesses. Kochhar, in a recent newspaper interview, had said ICICI Bank was not ceding its leadership position in retail. HDFC Bank, on its part, has strengthened its investment banking business and managed its first ever equity issuance as the co-book running lead manager for Muthoot Finance's Rs 900-crore initial public offer.
In the mobilisation of deposits, the duo has decided to bank on a similar strategy of opening more branches to increase the share of low-cost current account and savings account deposits. While none of the banks were willing to comment on the rival's business plan, both felt the market was big enough for both the banks to grow their businesses. "I wish ICICI Bank well, but they don't really affect our growth rate. There is enough business for everybody," Puri said in an interview with Business Standard.