In an interview with Anita Bhoir, Sukthankar says, "The retail opportunity continues to be there, provided you can tap into it.'' Excerpts:

With interest rates inching up, how do you see your retail business growing?

We believe the retail banking still remains a great opportunity. It is a long-term story. The level of penetration of the retail credit in India is estimated around 10 per cent of GDP as against other Asian countries, where it is 30-40 per cent.

The growth in GDP, and in the services sector in particular, has had a trickle-down effect on income levels and therefore affordability of credit. India's demographic advantage is also contributing to the growth in retail credit. Currently, all these factors remain intact.

The only factors that have changed over the last year are interest rates and property prices. To that extent, the rate of growth in retail finance has moderated.

How are various categories within retail doing?

Within retail, particular product categories such as two-wheeler loans, commercial vehicle loans and home loans have seen slower growth, while products such as auto loans, personal loans and credit cards are doing well.

In the last couple of quarters, business banking, which includes loans extended to small businesses based on cash flows and largely secured by property, has also grown at a very healthy pace.

Overall, the entire retail credit opportunity continues to be attractive, provided you can manage growth, profitability and risks well. At HDFC Bank, we have traditionally grown as one of the market leaders by balancing volumes, margins and risk and we have not compromised one for the other.

In the current environment, we are, therefore, well positioned to continue to grow our retail book. The bank's retail loans grew by around 30 per cent in the June and September quarters. Retail therefore continues to be an engine of growth.

How is the bank's corporate business doing?

Over the last several years, even when the retail business was growing at over 30 per cent, we continued to grow our corporate and other wholesale banking businesses at around 20 per cent per annum.

In the last couple of quarters, there has been a pick-up in corporate business and we are well positioned to grow this business faster. Ten years ago, we were focused largely on large corporates.

Today, we cater to a wide range of segments, including large corporates, emerging corporates, financial institutions, supply chain, commodities and agriculture. Our core strengths are in transactional banking, trade services and treasury products, where we differentiate ourselves based on technology, structures, service quality and price.

Can you throw some light on your business plan for the non-banking finance company, HDBL?

We are putting in place a management team. In the next couple of months, we will have a clearer structure in place from the viewpoint of people and infrastructure.

We have appointed G Ramesh, who used to be a part of the bank's team some years ago, as the chief operating officer. HDBL will focus on specific retail businesses and newer geographies, where we see strong potential.

Unlike your competitors, HDFC Bank does not have any major international presence. What is the reason for this and are you planning to change this in the near future?

To us, at least at this point of time, the international business is not a balance sheet-driven opportunity. The domestic opportunity continues to be more attractive in terms of asset growth and margin.

The international business strategy of the bank is to tap opportunities relating to non-resident Indians and trade flows. We have applied for branch licences in two countries - one in West Asia and the other in the Far East. 

Do you see the cost of funds for banks coming down?

We have changed our deposit rates in line with the industry. Interest rates on both bulk and retail deposits have come down.

Despite this, deposit rates are attractive from retail depositors' point of view and overall deposit growth here remains robust.

Unfortunately, the increases in CRR have largely offset the benefit of lower interest rates, precluding banks from dropping lending rates. Peak one-year retail deposit rates are still around 8.75 per cent. I believe there is further room for deposit rates to come off.