HDFC Bank to grow advances slower than its deposits: CEO Jagdishan

HDFC Bank, the country’s largest private sector lender, will grow its advances at a slower pace than its deposit, as it seeks to bring down its elevated credit- deposit ratio to pre-merger levels, Sashidhar Jagdishan, managing director (MD) and chief executive officer (CEO), HDFC Bank said in his address to shareholders in the bank’s annual report for FY24.

Erstwhile mortgage financier HDFC was merged with the bank with effect from 1 July, 2023.

“It is our endeavour to bring down the credit to deposit ratio to pre-merger levels and our focus would be to maintain adequate liquidity buffers, repayment of (erstwhile) HDFC borrowings as and when they mature, including weighing any prepayment opportunities that may arise, and pursuing profitable sources of lending,” Jagdishan said.

“During this time of adjustment, the bank would grow its advances a little slower than the deposit growth. We will avoid pursuing growth which does not meet our risk adjusted profitability thresholds, in line with the bank’s philosophy,” he added.

Post-merger, the credit-deposit ratio of the bank has been over 100 per cent while it was around 87 per cent pre-merger.

Jagdishan said that post the merger the bank is looking at a very different liability profile.

“We are clear in our intent of pursuing profitable growth. The bank will continue to focus on granular deposit mobilisation leveraging our inherent distribution strengths and the execution focus that we are known for,” said Jagdishan.

The Reserve Bank of India has been repeatedly cautioning banks on the high credit – deposit ratio in the system. Recently, in a meeting with the chiefs of both public sector banks and private sector banks, governor Shaktikanta Das emphasised on the widening gap between credit-deposit growth.

The regulator had also highlighted the need for banks revisiting business models in light of the wide gap.

Jagdishan said post-merger, HDFC Bank should be viewed differently, and comparing it with the past in terms of metrics may not be appropriate.

Erstwhile housing finance major HDFC Ltd. merged into HDFC Bank on July 1, 2023, creating a financial behemoth.

“In many ways it is now a new organisation with a different balance sheet composition,” Jagdishan said, adding that the bank has now a higher proportion of borrowing at 21 per cent versus 8 per cent pre-merger and a lower current account savings account (CASA) ratio.

Key metrics of the new organisation will be different than that of pre-merger levels, he added.

According to Jagdishan, the merger has opened up fresh vistas for growth through the mortgage business, not only through increase in home loan disbursals, but also by leveraging customer engagement with the cross-sell opportunities across the HDFC Bank group.

Post-merger, around 85 per cent of incremental home loan disbursals were to HDFC Bank savings account customers. Pre-merger this number was at 30-35 per cent.

“This has been possible due to the extensive distribution network of the Bank, seamless integration of bundled journeys and the execution capability of our teams on the ground, which I am really proud of,” Jagdishan said, adding that the bank’s ability to build a strong liability franchise leveraging home loan customers is well on its way to fruition.

The bank has a suite of financial products that it offers to its home loan customers including credit cards, consumer durable loans, wealth products, and insurance.

While it is seeing strong traction on savings accounts being opened with home loans, it is now going to focus on leveraging the cross-sell opportunity of both the bank and the group’s products to the home loan customers.

“While we remain committed to an open architecture model, we do expect to distribute more of the subsidiaries investment and insurance products, leading to an increase in fee income,” said Jagdishan.

Speaking on the technological development that the bank is undertaking, Jagdishan said, the bank embraces technology’s evolution into a growth catalyst through the ‘Shift Right’ strategy.

“Our vision is to shift from a product-centric approach to a customer-centric one through five transformation pillars built on modern technology constructs,” Jagdishan added.

“I am proud to share that technology played a crucial role in ensuring a seamless merger despite substantial complexities. Integrating over 100 applications through data migration and a multitude of backend system changes, the activity was fully managed and executed by in-house teams imbibing us with further confidence in our capabilities”, Jagdishan highlighted.

“Our commitment to delivering exceptional experiences and inclusive banking services will be driven by the adoption of new-age technologies focusing on scalability, resilience and security while building the bank for the future,” Jagdishan said.