How HDFC Bank lost Rs 50k-cr corporate loans

HDFC Bank, the country’s largest private-sector lender, lost to competition wholesale loans of around Rs 50,000 crore after it increased interest rates in May, said chief financial officer Srinivasan Vaidyanathan in an analyst call.

"There were some customers who were offered lower rates by other market participants.

"But we decided not to cut back on our rates,” he said while addressing analysts after the announcement of the bank’s Q1 earnings.

Credit growth has risen with economic activities picking up in the past few months.

According to the latest Reserve Bank of India (RBI) data, for the fortnight ended July 1, 2022, non-food credit grew 13.8 per cent year-on-year (YoY).

According to the latest sectoral deployment data released by the central bank, credit to industry, which accounts for 28.4 per cent of non-food credit, was up 8.7 per cent YoY, which is the highest growth rate in the past seven years.

Credit demand in the industry segment has been high with capacity utilisation picking up, and with the change in interest rate dynamics, part of the capital market credit has moved towards banks.

In the January-March quarter, HDFC Bank’s asset mix tilted heavily in favour of the wholesale segment even at the cost of margins.

From the pre-pandemic mix of 55:45 between retail and non-retail, HDFC Bank’s retail loan share dropped to 39 per cent as on March 31, 2022.

The share of retail loans remained at 39 per cent even at the end of the June quarter, with corporate and commercial and rural banking making up for 26 per cent and 35 per cent, respectively.

In Q1FY23, HDFC Bank’s retail loan portfolio registered 22 per cent YoY growth.

“The vehicle segment was hampered by supply chain issues.

"Despite that, it (retail segment) did grow well.

"Retail, excluding the vehicle segment, grew 25 per cent YoY.

"We do see good demand across most of the products,” Vaidyanathan said.

The credit card portfolio also saw strong growth as the bank, which is the largest in the business in the country, issued around 1.2 million credit cards in the quarter, the highest ever in a quarter, taking the total to 17.6 million.

HDFC-HDFC Bank merger

Earlier this month, the merger proposal of HDFC and HDFC Bank, said to be one of the biggest transactions in India’s corporate history, received no objection from the RBI, with certain conditions.

When asked about the conditions, Vaidyanathan said: “The no objection by the RBI is on our application.

"When the merger happens, the Banking Regulation Act will apply across all the portfolios and businesses of the bank.

"There are some entities that we will merge and the licences of those that will merge will have to be surrendered and intimated to the RBI.”

“Also, we have to get the approval of other authorities and the shareholders and subsequently report back to the regulator,” he said.

The bank had requested the RBI a phased approach in respect of the statutory liquidity ratio/cash reserve ratio (SLR/CRR), priority sector lending (PSL), grandfathering of certain assets and liabilities, etc.

The bank asked for two-three years to be compliant with the CRR, SLR and PSL requirements in the new structure.

“The glide path we had asked for is a separate item and is being handled separately from the application.

"And, we continue to work with the regulator on that aspect,” Vaidyanathan said.

HDFC Bank had written to the RBI to permit it to hold a 50 per cent stake in HDFC Life, the life insurance subsidiary of HDFC Ltd, which will become the bank’s subsidiary after the merger.

According to RBI regulations, a bank can either hold 30 per cent or below in an insurance company or 50 per cent or above.

“HDFC’s holding in HDFC Life is 47.8 per cent. So there is a little over 2 per cent increase in stake that is required.

"This is part of another regulatory approval we have sought,” he added.

Branch expansion

The bank will add 1,500-2,000 branches each year for the next three years, which will double the distribution network.

“In Q1 the branch build-up was low -- about 36 -- but we will add 250 branches.”