“Management believes market share gains from public sector banks (60%+ of sector ) to private banks will continue and offers scope to double share in credit from 7-8% now. Underlying theme of its strategic initiatives for the next five years will be to win wallet share of clients by building ecosystems across segments,” Jefferies said.
The bank has already started weaning away market share from its public sector counterparts by increasing its share of ‘navratna’ or large government owned companies in the last two quarters.
HDFC Bank recorded a strong 21% year on year loan growth in the quarter ended June driven by working capital loans as companies preferred to stay liquid due to the economic uncertainties. This strong loan growth was the main reason for the bank’s 20% rise in net profit during the quarter.
Jefferies said Jagdishan plans a complete revamp of digital platforms with strengthening of payments infrastructure and acceleration in the bank’s virtual relationship management (VRM) platform from 6 million clients now to 25 to 30 million in the next five years.
“Customer acquisition at the bank remains in fine fettle, with the run-rate at 6 million per year (FY20) – HDFC Bank had 56 million total customers as of FY20. Further, the customer acquisition run-rate at present is around 80% of levels seen last year, despite the fact that around 70% of HDFC’s employee base currently works from home,” Jefferies said.
Jagdishan is currently designated as ‘change agent’ at the bank with charge over legal & secretarial, human resource, corporate communication, infrastructure & administration, and corporate social responsibility. He played an important role in fulfilling his predecessor Aditya Puri‘s vision of HDFC Bank pivoting toward payments and technology which started in 2010. This brought him close to his boss and made him a favourite to take the top job. Focus on digitisation has helped the bank reduce its cost-to-income ratio from 44-45% in FY16-17 to 39% in 4QFY20 and Jagdishan believes that he can push it down even further.
Semi urban and rural areas which accounts for around 50% of HDFC Bank’s distribution network will continue to be in the bank’s mix and Jagdishan plans to focus in the top population segments in these geographies to expand its business.
This is the second time Jagdishan, who takes over on October 27, has spoken to investors after being named the successor. Last week in a call with Macquarie in which more than 150 investors participated, Jagdishan had expressed confidence that the bank’s gross NPAs will not deterioate more than the 2.08% seen during the 2008 crisis. The bank’s gross NPAs as of June was at 1.36%.
“Despite 10% of the loan book under moratorium, they are very confident of containing the NPLs to low levels. Salary credits are at 98% of pre-covid levels. So, there could be some problems in the 2% of customers. The 50 to 60 basis points of covid/floating/contingent provisions created would be sufficient as of now. If needed, they will do more accelerated recognition of NPAs as well as provisioning in the subsequent quarters,” Macquarie had said.
About 9% of the bank’s loans are under moratorium with 97% of these borrowers not having defaulted in the past and more than half of them paid their dues in June. The bank expects retail loan disbursements to start from the quarter ended December.