HDFC Bank, the country’s second largest private lender, has been growing its advances faster than the banking system for several years now. In an interview with Manojit Saha and Somasroy Chakraborty, Executive Director Paresh Sukthankar says the bank is adequately capitalised to meet the growth targets for at least a couple of years. Edited excerpts:
The Reserve Bank of India (RBI) has expressed concerns regarding the widening gap in loan and deposit growth. As of December-end, your deposit growth was 22 per cent. What is your credit-deposit ratio? Have you taken any step to limit the rise?
The principle behind looking at the credit-deposit ratio is to find out if the bank has sufficient liquidity to support its loan growth. There are two ways to look at it — in terms of absolute liquidity and the composition of the same. Sometimes, the ratios are high as you have a higher capital. Normally, better-capitalised banks have high credit-deposit ratios. If the ratio is high due to high capital, it is better than having a lower credit-deposit ratio. Our ratio for domestic operations currently stands at 77 per cent.
As far as the industry is concerned, do you think the incremental growth in credit-deposit ratios will remain high?
Higher deposit rates have led to faster growth in deposits. To that extent, loan rates have also gone up. Given the high base of loans in March last year, the loan growth of 23-24 per cent in the system may come down to 21-22 per cent by year-end. Also, growth in deposits has gone up from 14-15 per cent to 17-18 per cent. Thus, the gap of 500-600 basis points between deposit and loan growth will narrow down to 200-300 basis points. Naturally, the incremental growth in credit-deposit ratios will also moderate.
During the present liquidity crunch, most banks scrambled for funds to support loan growth. How was your experience?
I will call it liquidity deficit and not a crunch as it did not create panic in the market. If you look at the banking system’s net borrowing and the wholesale price index numbers, peaks in both segments happened in the earlier part of the year. However, as there was a feeling that inflation will come down by the end of the year and liquidity will become comfortable, the markets never panicked.
We have been very comfortable with our liquidity throughout this period. This is because the quality of our deposits and loans has been extremely healthy. If you look at our deposit composition, we have a much stronger retail deposit base. We have a high proportion of current and savings account deposits and the share of retail is also high in our fixed deposit base.
You have been growing faster than the industry for the past several quarters. What is your credit and deposit growth target for this financial year? Are you looking at raising additional capital to finance your loan book growth?
We believe growth in the banking system is related to economic growth. Even if we go by the most conservative estimates and assume the growth in gross domestic product (GDP) to be eight per cent, the banking system will grow at 20 per cent. In the last 16 years, we have grown faster than the banking system. This year too, we expect our growth (in loans and deposits) to outpace the industry average. We are strongly capitalised. We don’t need capital for our funding requirements. While it is difficult to predict the exact timeframe, I think even if we grow faster than the system, we will have enough capital for the next couple of years.
Banks have been aggressively raising bulk deposits. Did HDFC Bank raise these high-cost deposits? If yes, what will be the impact on your net interest margin? Also, what’s your outlook on interest rates?
We have raised some bulk deposits, but it’s not like we having been scrambling for these. For the last several years, our margin has been around 3.9-4.3 per cent. I think it will remain in the same range this financial year. It is a function of our deposit and loan mix. I do believe retail deposit rates will remain at the current levels for sometime. However, the premium paid for bulk deposits will drop pretty quickly post April. On the lending side, base rates have moved in conjunction with deposit rates. The transmission of deposit rate rises has not taken place completely for retail loans. Thus, there could be some increase in rates for banks’ retail loans.
