HDFC Bank Managing Director Aditya Puri believes that the global financial turmoil will have a limited impact on India because of the regulations and the reluctance of Indian banks to invest in complex instruments. He spoke to Anirudh Laskar and Sidhartha about the impact on the system and on his bank. Excerpts:
How has the life changed in the last one month?
What has happened globally has not impacted the banking sector in India in any significant way. By and large, we have not been allowed to invest in overseas assets. Other than overseas branches, we have an insignificant exposure to overseas markets.
We did not go into nasty derivatives like credit default swaps. We did not have a maturity mismatch and high leverage that has been created in overseas markets. Most banks here hardly have a 5 per cent dependence on the call market. So, we should give credit to the regulator and the strength of the Indian financial system and to bankers. However, it will be naive to suggest that it will have no effect on India.
Within this environment, what has changed for HDFC Bank?
Very little. At 7 per cent GDP growth, if you take a credit multiplier of about three, the credit demand will grow at 21 per cent. We have always been gaining market share and we see no reason why that growth should not continue. We always restricted ourselves to the middle and upper-middle level. Giving credit to somebody who has difficulty in affording it is not a favour to him, it is a disservice. We have very stringent credit norms and we do not need to lower our margin to be able to maintain our growth along the lines that we have had in the past, which is at 25-30 per cent.
Our portfolio is fine and our growth momentum is fine. We will see some impact on the SMEs, and the corporate clients, but this impact would be more in terms of squeeze on the profits, rather than the viability. But with a marginal uptake in NPAs, you could expect some impact. But we do not expect the NPAs to exceed what is a part of our product programme, thereby not affecting either our profitability or our provisioning.
With the global credit crunch, a part of the demand from Indian companies will shift to India and put pressure on the system.
Absolutely. It is not just the shifting of demand from abroad. We have to see the change scenario, which will prevail over a period of time, and injection of liquidity into the banking system at periodic intervals will be a must. The reason being is that not only what was funded from ECBs is shifting back to India, buyers’ credit is also not available.
People are unwilling to go in for equity issues at current prices, there is demand from oil firms and fertiliser companies and as inflation reduces profitability, deposits go down. So there is going to be an incremental demand in the banking system to provide liquidity to fund the economic growth. There will be demand for liquidity in the Indian banking system. However, there is enough cushion in the system to make sure that it happens. So, with inflation coming down, I think we are likely to be moving to a lower-rate environment.
You have a strong Casa (current account and savings account) base. Your rival banks are talking about increasing Casa...
They have been talking about it for 10 years. There is no shortage of business and demand in this country. We see no reason, based on our business model, that we would not be able to maintain the desired level of Casa, which is a function of our business model. On the retail side, our branching goes in for greater penetration. So, our average savings account balances are at least 25 per cent higher. We are very strong in areas like cash management and tax collection. Competition means you have to become number-one in cash management.
In the last one month, did you see any delays in disbursals or did maintain any extra caution?
No. We met all our commitments. Yes, we did slow down growth to some extent during that time, but any prudent banker would do so. There is a thing called strategy and there is a thing called adjustment. But that is normal. There is nothing to panic.
Why have a few banks not used the Statutory Liquidity Ratio (SLR) relaxation?
The SLR relaxation is not actually an SLR cut. So, the banks have used it for the people who were borrowers. I don’t think there was an emphasis that people will borrow from that and then lend it in the market. So, people will only use it either if you have those borrowers, or if there is a mismatch, or if the call rate is higher than the finance facility.
Other banks will just leave it that way. There is a certain range of SLR that needs to be maintained according to the RBI norms. The range is somewhere between 1.5 per cent and 2.5 per cent and we are within that figure. Please remember that to maintain our balance sheets and to make sure we take care of defaults, we require to maintain some excess SLR.
Can you give us a sense of your credit card business since there are concerns on delinquency after you raised the charges?
Almost 70 per cent of our cards are sold to our own customers. So, the delinquency in cards business has been totally in line with our expectations. When we increased the rates, we did it because we were lower than the rates in the industry.
What about other retail loans?
We are not into the consumer durables loan segment. Our business is growing in all the segments that you are talking about. Two-wheelers have been among sectors with the slowest growth, which would be around 10 per cent. Our car loan business has been growing in the range of 20 to 25 per cent. Our overall consumer business has been growing between 25 and 30 per cent. We do not see any reason why that growth should not continue.
Is there a slowdown in corporate credit growth?
In terms of new projects, there is a slowdown, but not for old investments. For new projects, with the given rates, people would prefer to wait and watch. The infrastructure spending that was committed by the government is awaited. But I am sure that will also come along.
What about raising more capital since the Capital Adequacy Ratio (CAR) fell to 11.4 per cent at the end of the September quarter?
We are very good on capital after the merger with Centurion Bank of Punjab. HDFC has a warrant, and the warrant is exercisable by December 2009. We don’t need to go to the equity market in the near future, and we are well capitalised. We will look at tier-II, as and when it is required.
It’s tough to compare numbers for two years when a merger has taken place. How is the merger of Centurion Bank of Punjab progressing?
Look at the combined figures. The margins have not gone down. There is no substantial change in non-performing assets. That means we have absorbed a lot of the things, which I think is a fantastic achievement. The cost to revenues was high at 60s, ours is 49 or so.
Combined, we have now brought it down to about 55, and we think we will bring it down progressively every month till it comes down to our original of about 49 over a period of 12-18 months. But, as time goes by, the distribution network will benefit. The distribution has doubled. That will have an impact. We had 10 million customers a year ago, today we have 15 million. We think, over a period of 24 months from the merger, the integration would be accretive.
