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The country’s largest private sector lender HDFC Bank on Saturday said it will grow its loan book slower than the industry in the current financial year (FY25).
The move comes as the lender looks to bring down its elevated credit – deposit (CD) ratio to pre-merger levels.
“We will bring down the CD ratio faster than what we had anticipated.
In FY26, we may be at or around the system growth rate, and in FY27, we should be faster”, said Sashidhar Jagdishan, managing director and chief executive officer, HDFC Bank, in a call with analysts following the bank’s September quarter (Q2) earnings.
In Q2, HDFC Bank reported sub-system credit growth at 7 per cent year-on-year (Y-o-Y) and 1 per cent sequentially as the bank continued shedding erstwhile HDFC Ltd’s corporate book, and also selling off its retail portfolio.
Deposits, however, have grown at a swift pace of 15 per cent Y-o-Y and 5 per cent sequentially, helping the bank bring down its CD ratio to around 100 per cent.
HDFC Bank’s CD ratio was around 87 per cent pre-merger.
Following the merger, its CD ratio went up to 110 per cent.
“We thought it would take 4-5 years to bring down the CD ratio at the pre-merger level.
"However, there is an opportunity as the rate of credit growth has been high in the last two years, and is expected to come down to the deposit growth level.
"Hence, it was appropriate to say we will bring down the CD ratio in 2-3 years.
"An accelerated approach to bring down our CD ratio is on our mind”, said Srinivasan Vaidyanathan, chief financial officer, HDFC Bank.
According to Jagdishan, the reason there is a change in the thought process is because they believe there may be a change in the credit environment in the next 2-3 years.
“Since we have stable asset quality, we want to be extremely well positioned when the positive cycle probably changes.
"We want to capture the kind of incremental growth that we have seen in the pre-merger years.
"That’s one of the reasons why we are accelerating the bringing down of the CD ratio”, said Jagdishan.
Elaborating on the credit strategy, the bank’s management highlighted that in mortgages, they are in full force because it provides better customer relationships.
However, in the non-mortgage retail segment, they have moderated the growth purely based on credit dynamics.
Additionally, it is in the larger ticket size loans where they have done maximum calibration because of pricing issues.
“The bond spread on a 2-year ‘AAA’ has moved between 15-30 bps.
"However, loan spreads in the market are pressured to come down.
"So, at this stage, we chose not to go. Hence we moderated the growth,” Vaidyanathan said.
While the bank’s credit growth is lagging the system credit growth, it has mobilised over Rs 1.2 trillion in deposits in Q2, of which around Rs 1 trillion is in time deposits, and around Rs 12,000 crore in savings deposits.
“As we have witnessed in the previous high interest cycle, customer preference has continued towards time deposits probably to lock in at higher rates.
"Despite an intense competitive environment, deposit growth has been very healthy.
"On an average basis, we have grown around 15 per cent Y-o-Y.
"Retail branches continue to contribute 84 per cent of the total deposits,” Jagdishan said.
The bank reported a 5 per cent YoY growth in profit to Rs 16,821 crore while net interest income (NII) was up 10 per cent Y-o-Y to Rs 30,114 crore.
Net interest margin – a measure of profitability – stood at 3.46 per cent. Asset quality saw slight deterioration, with gross NPAs at 1.36 per cent.
“We are seeing the retail disbursements going up, and it will take a little bit of time to reflect on the book.
"But, definitely, we will be ahead of the curve and we should be able to capture the right customer segmentation at the right price.
"But we are very watchful of what is happening in the environment and as of now we are not seeing any red alerts and continue to calibrate our growth depending on the pulse we have at the ground level”, said Jagdishan.
HDFC Bank to sell shares worth Rs 10K cr in HDB Financial
HDFC Bank has informed the exchanges that the banks’ board has approved to sell equity shares worth Rs 10,000 crore via an offer for sale (OFS) in its subsidiary, HDB Financial Services.
Accordingly, the total IPO size of HDB will be of Rs 12,500 crore, which includes a fresh issue of Rs 2,500 crore.
The Reserve Bank of India (RBI) guidelines require HDB Financial Services to be listed by September 2025.
The process of listing was kicked off between July – August by the bank.
“The price and other details of the proposed IPO will be determined in due course by the competent body.
"Please note that after the proposed IPO, HDB Financial Services would continue to be a subsidiary of the bank, in compliance with the provisions of the applicable regulations”, the bank said.
HDFC Bank holds a 94.64 percent stake in HDB Financial Services.
