HDFC Bank CEO Sashidhar Jagdishan raises concerns over funding risk post merger at AGM

HDFC Bank chief Sashidhar Jagdishan on Friday said funding will remain the biggest risk after the HDFC Bank and HDFC merger.

Speaking at the first annual general meeting of the newly merged entity, Jagdishan said the merged entity's primary risk pertains to funding.

“As you know, the risks of the merger is the funding part of it," Jagdishan told shareholders of the largest private sector lender.

He added that the net interest margins (NIM) for the bank will drop September quarter onwards as the mortgage book of Housing Development Finance Corp (HDFC) carries a lower spread. In the April-June quarter, HDFC Bank’s net interest margin stood at 4.1 per cent.

The merger of HDFC and HDFC Bank became effective on July 1, and Q2FY24 will be the first quarter when the lender will report its results of the merged entity.

HDFC Bank has set itself a target to mobilise Rs 4 lakh crore of deposits to help expand loans at 18 per cent.

Jagdishan added that the margins of the bank will see a downward trend in the future.

“We operate within a range of 4-4.4 per cent of NIM over multiple businesses and interest rate cycles. It is also dependent on the business mix, but this is largely the kind of NIMs that we will operate in,” Jagdishan said.

It is to be noted that HDFC Bank has not been fully successful in getting all the forbearance it had sought from the Reserve Bank of India (RBI) on the liabilities front.

The central bank has refused to provide any exemptions on Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements on the deposits that come from HDFC, which was a deposit-taking entity.

Besides, questions were raised about the possible impact on HDFC Bank with respect to the RBI's latest move to put an incremental CRR of 10 per cent on deposit accretions in all the scheduled commercial banks after May.

At the MPC review meeting this week, the central bank asked banks to maintain an incremental Cash Reserve Ratio (ICRR) of 10 per cent on the increase in their deposits between May 19 and July 28 to suck out excess liquidity in the banking system.

The CRR is basically the cash parked by the banks in their specified current account maintained with RBI. The CRR has been kept at 4.5 per cent of banks’ deposits.

Jagdishan further said the merger presents a host of opportunities for the bank as it now has units in the life insurance, general insurance, realty investment and asset management sectors.

He said that just 2 per cent of HDFC Bank customers had opted for an HDFC home loan and the scope of further penetration in this customer segment provides a lot of growth runway.

“If we do manage to execute well, there is an opportunity for the bank to create a new HDFC Bank every 4-5 years without compromising on our credit policy and profitability. I think there is a great opportunity this merger is going to give us,” he added.

However, housing loans also present advantages in terms of better repayment ratios which lower the credit costs on such advances, Jagdishan added.

HDFC Bank part-time chairman Atanu Chakraborty said the larger balance sheet of the bank after the merger would offer to the national economy possibilities of higher credit growth, a larger bouquet of financial products and higher flows into affordable housing, agriculture and MSMEs.

Chakraborty said after the merger, the bank is poised to benefit from the addition of a market-leading home loan product which can now be directly offered through the bank’s large network of branches.

“The home loan business will also benefit from the low cost of funds that a bank traditionally enjoys,” he said at the AGM of the bank.

“The bank emerged as a star performer with the highest disbursal of Rs 44,823 crore in the ECLGS scheme benefiting over 1.25 lakh customers,” he added.

The shares of HDFC Bank closed at Rs 1,619.05 a piece, down by 1.05 per cent, on BSE as against a 0.56 per cent correction on the benchmark.

(With agency inputs)

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