We Will Grow as Long as the Economy Does: Aditya Puri, MD, HDFC Bank

Aditya Puri, managing director of HDFC Bank—the country’s second largest private bank—exudes a confidence that reflects the bank’s current financial position. As it expands into India’s hinterland, the bank is relentlessly pursuing the objective of financial inclusion and self-sustainable livelihood for millions of people.  

Today, HDFC Bank is seeing a 20 to 25 percent growth in its rural India operations, and more than 55 percent of its 3,403 branches are in semi-urban and rural areas. Its balance sheet size rose 22.8 percent to Rs 4.91 lakh crore as on March. Deposits are up 24 percent at Rs 3.67 lakh crore, of which current and savings account (CASA) deposits constitute 44.8 percent.

Slackening economic growth, however, has affected HDFC Bank’s last quarterly earnings: It reported a 23.1 percent growth in net profit for the January to March quarter—Rs 2,326.5 crore—which, analysts say, is its slowest in a decade.

In a chat with Forbes India, Puri, who has headed HDFC Bank since 1994, talks about its core strengths, its correlation with GDP growth, the impact of new private banks and its strategy for future expansion. Excerpts:

Q.  What is the outlook for next year, as the bank continues to grow?
Our portfolio is not under any strain; margins are intact, our net non performing assets (NPAs) are negligible at 0.3 percent, and we have no problems in restructured loans. The bank’s capital adequacy is at 16.1 percent.

We are the only bank to have gone in a big way in the semi-urban and rural areas [where 70 percent of India’s population lives]. We have put in the best technology in virtual banking, and now—like Wells Fargo—have created a system where, whatever you can do physically, you can do virtually.

Due to this, we have the fastest turnaround time: One can apply for a loan and get an approval in 15 minutes and a disbursal in four hours. We have data warehousing, analytics, customer relationship management systems, repository of documents, outbound call centre and a strong online presence through net banking.

We are a leading bank in almost all products we participate in—auto and personal loans, credit cards, loans against gold, agri-loans, tractors, cash management, currency operations and corporate banking. We have doubled our distribution in the last three years. So we have no problem for a long time to come.

Q. There is a slowdown in the economy and yet your NPAs are under control. How has your bank managed this?
We are the only bank that straddles the diversity of the economy. As our economy is consumption, investment and government [led], we are the only bank that lends over 50 percent to the consumer goods sector. So if the economy grows, we will grow.

We have a very clear target market, we have no fix (that we must grow at a particular rate). We will grow at the rate that there is demand in the segment and of a credit type, and at the rate at which we earn enough to provide both a return on capital and for the delinquencies which will come.

We constantly monitor our portfolio, our credit and business teams don’t report to each other, so there is good constructive tension. We don’t see any reason to take unnecessary risks to grow, because demand continues to exceed supply.

Q. But what about problem sectors, like aviation?
So, we do not lend to aviation. We are in project lending; we have lent to power, to large new projects in aluminium. We are not tied in to, or stuck to, a particular growth rate. We will grow within the credit parameters set by us, without sacrificing our risk-return criteria.

Q. So the risk-return criteria is critical to your growth plan.
With our risk-return criteria and our target market, there is enough growth [even with the slowdown]. The penetration of organised finance in semi-urban and rural India is eight percent. Just substituting the unorganised [market] and moneylenders is enough for us, as we come with a better product.

Q. The semi-urban and rural sector is a key growth area for your bank. What are the things you are doing there?
HDFC Bank started going into semi-urban and rural India about four years ago. We tested the market, analysed the sales, credit and operational structures required, products and branch networks we need, and how we would service them. We test everything; we never bet the bank. Depending on our success rate, we will scale it up. So we have been scaling these up.

You won’t find any major bank [besides ours] in two-wheelers or in personal loans in the interiors, in credit cards or lending to small shopkeepers. [In that region], you need to have a customer-centric approach rather than a product-centric approach, because your customers get dispersed.

[When we touch the customer] we have to have the back-up available to him whereby everything that he needs, he can get at the touch of a button.

If our representative wants to sell a car loan, he just needs to access the HDFC Bank system, which will tell him the car loan products available, their advantages compared to peers and the rates.

If the customer agrees, the details are entered into a lead management system. Within 15 minutes, the customer will get a call from our call centre and in two hours somebody will be at his doorstep with details.

Q. Is this similar to what ICICI Bank is doing on tab banking?
We also have it. We can do tab banking not only from a tablet, but at our branch, from a computer and from mobiles. We have all the back-end capability to provide this, and scanning facility for documents. Each branch handles a radius of 15 km, with servicing costs kept low.

We are now in most areas in the north, from Delhi to Amritsar. We offer these services on a mobile phone with 2G technology, otherwise the reach is limited. This area is expanding very well.

Q. What kind of growth are you witnessing in the rural and semi-urban areas?
Growth is between 20 and 25 percent in these areas. That is not to say that our urban areas are not growing. In urban India, we offer the widest range of financial services, on mobile, on computers, and at bank branches, with the fastest turnaround time, probably at the best price. We compete on service, product range and brand. The latest technology and market leadership are added-on embellishments.

Q. Will the new banking licences [to two players] make a difference to your strategy?
One day it will, probably over the next eight to 10 years. But really, the more the merrier. When you are convinced of your pursuit of excellence in a wide geography, and you have executed that finely with the right people, why should we be scared of small things? Let more come in.

Q. Has HDFC Bank outgrown the HDFC brand?
HDFC Bank is also a brand, but both HDFC and the bank are drawing on each other. It does not matter who is larger. We straddle the GDP, so we will grow at real GDP x 3.2, plus 4 to 6 percent above, aided by market share.

Q. Some of your competitors are going to the bottom-of-the-pyramid, in rural, semi-urban areas. Do you think it is a strategy worth pursuing?
We are the largest bank in self-sustainable livelihood. We form a self-help group, we train them, lend to them, covering about 2.4 million of the poorest families. We plan to take this to over 10 million families in the next three years, plus secondary employment of another 25 million.

We provide them financial literacy, tell them how to save, who to sell to and help create a viable business for them. It is not merely lending to micro-finance firms. We substitute the moneylender in semi-urban and rural India.

This is our CSR [corporate social responsibility] activity. Right now this activity is loss-making, but it will become business in the next 10 years.

In all our CSR activity, the underlying theme is that we will go where we will make a difference, so it has to have scalability. In education, there is a gap between what is available and what is required for employability. We have tied up with a few institutes and plan to scale it up.

We are one of the few banks that met all the priority sector norms this year, but are a bit short in agriculture, which we will also meet.