HDFC Bank: CEO Sashidhar Jagdishan has a golden opportunity to seize market share; Can he do it?

How can we grow at 20 per cent year after year?” That’s what HDFC Bank’s Sashidhar Jagdishan (also called Sashi) asked the then MD & CEO Aditya Puri a few years ago when they were on the road from Mangaluru to Manipal. As they travelled, the Arabian Sea beside them was bustling with trawlers and fishermen going into the sea. “I’ll explain. Look,” Puri began, prompting Sashi, who was designated as a ‘change agent’, a move aimed to position him as Puri’s successor, to look towards the sea. “There are big and small trawlers in the ocean,” said Puri, adding, “Who has a bigger net?” And before Sashi could reply, he further asked, “Who would have a better catch?”

And, here you are! Current MD & CEO Jagdishan, who took over from Puri in October 2020, is being posed the same query after the bank’s merger with parent HDFC Ltd. The merger has created a giant with a balance sheet size of Rs 29 lakh crore, next only to the State Bank of India’s Rs 52 lakh crore (till September 2022). The 57-year-old Sashi knows that there are now many competitors with big trawlers in the market, but he is focussed on the future.

Named the Best Large Indian Bank for a number of years now, HDFC Bank has again topped the category in the BT-KPMG Best Banks and Fintechs Survey 2021-22. But Sashi, who is getting a retail loan book of Rs 4 lakh crore in the merger, believes the bank still has a long way to go.

Consider this: prior to the merger, only a third of the bank’s 6,300-plus branches offered home loans. Plus, a paltry 2 per cent of its 70 million customers had taken a home loan from the parent. In that backdrop, insiders say that Sashi plans to run mortgages in a very integrated fashion by bundling it with products such as cars and personal loans, wealth management, insurance, etc. Post the merger, the share of unsecured loans on its books will decline from 30 per cent to nearly 22 per cent. This would open a huge window to do high-yield unsecured loans. Over the past two decades, the bank has consistently grown by at least 20-25 per cent in terms of revenues, profits, loans, and balance sheet, while maintaining the lowest non-performing assets and a high return on equity. However, maintaining these with such a large size would be difficult. As such, the bank will likely continue its strategy of striking a balance between growth, risk, and margins.

In the past two years, the bank has grown its corporate book by 20 per cent-plus. “We see growth in high single digits in the near-term as some low-yielding housing loans get merged with the bank, along with the cost of regulatory compliance,” says Manu Rishi Guptha, Founder & CEO of wealth management firm MRG Capital. Its corporate book is now bigger than retail, with a share of 55 per cent in total advances.

Also, MSME, considered a risky bet, has been growing at a CAGR of 26 per cent over the past seven years. “The MSME division is present in 90 per cent of rural areas,” says Jitendra Upadhyay, Senior Equity Analyst at Bonanza Portfolio Management. A report by Elara Securities says that MSME is one of the most vulnerable segments due to high sticky inflation and the interest rate scenario, and its continuation may lead to growth moderating in the segment.

The merged entity’s biggest challenge will be the mobilisation of liabilities. The bank, which is already raising Rs 80,000 crore of liabilities every quarter, will require additional funds to grow. “The liabilities of HDFC Ltd will mature over a period of time. This acts as a cushion,” says Srinivasan Vaidyanathan, CFO of HDFC Bank. The bank also plans to double its network of branches in the next three to five years by opening 1,500-2,000 small ones every year. “Post-merger, we would have one of the highest capital adequacy ratios and may not need to raise funds immediately,” he adds.

But for the combined entity, Sashi will miss the wisdom of stalwarts like Aditya Puri (who has retired) and Deepak Parekh, who is about to retire. He will also miss the counsel of Keki Mistry and Renu Sud Karnad (who is on the bank’s board) as they will no longer be a part of the management of the combined entity. Sashi, however, is confident that HDFC Bank will continue to grow despite the challenges.

@anandadhikari