Now the largest private lender, HDFC Bank, is guided by its goal of growing faster than the system even as it keeps an eye on margins and asset quality. Deputy Managing Director Paresh Sukthankar tells Shritama Bose and Shobhana Subramanian there won’t be much room for a reduction in the MCLR rate if the CASA ratio in the system comes down. Excerpts…
How are yields moving now? Are they coming down sharply?
In January, when the MCLR was recomputed, it came down by roughly 75 basis points. That obviously is a function of what happened to fixed-deposit rates as well as the slightly higher savings accounts due to demonetisation. As for the period between January and February, I’m not sure whether any of our fixed-deposit rates have moved meaningfully. On the flip side, some amount of money from the current and savings accounts would have gone out. Deposits have fallen (in the system), but CASA will still stabilise at a slightly higher level than the pre-demonetisation days. So, people are guessing that 20-25% of it will remain. To go back to the calculation, the formula is simple. You just see what your proportion of CASA is and what the rates are. If the rates are not changing and CASA comes down, there won’t be much room for MCLR reductions, except to the extent the deposit rates come down.
Will deposit rates come down further?
The rates have come down to a level where you can’t go much further. As a deposit customer, if you believe that inflation will be at 4-4.5%, you need to get 6.5-7%, in that range that is. I think any reduction in rates otherwise has more to do with what happens with liquidity, what continues to happen in terms of the spreads over MCLR for, let’s say, fixed-rate loans and so on. There has to be some reduction because you are competing not just with players within the banking system. You are also competing with commercial paper, bonds and so on.
Banks are now participating in the bond market…
Which is funny, right?
It’s a bit of a chicken-and-egg situation. Banks are surplus because loan growth is tepid. Loan growth is tepid because market rates are lower and, therefore, customers would want to borrow through CP and so on. But a large proportion of shorter-end commercial paper borrowers are banks. So effectively, when you are looking at credit growth, you should go back to what we called ‘customer assets’, which we used to look at before we went back to loans and advances because it had died a sort of natural death. But anywhere in the world, bank rates will be slightly higher.
What does a bank like yours aspire to, if you were to look 5-10 years ahead?
We have always believed that there is a large market, a potential financial services market which is there to be tapped. If we are to be the preferred provider of banking services, the customer should think of us as their first port of call. And we should be able to offer them services with the highest level of convenience, shortest turnaround times and at a price point that appeals to her. Just as important, we want to do this not for a narrowly defined segment of customers, but across customer segments, as also geographies — metropolitan, urban, semi-urban, rural, unbanked – and across a much wider product range than perhaps most other banks have done. We have always wanted to have a franchise that caters to the wholesale business and within that the large corporate, the emerging corporate, which is the middle market, the SME piece, which is business banking, and certain other segments out there. Then there is the retail piece with its full range.
Is there a target for the next 5-10 years?
From a balance-sheet or growth perspective, we are very clear that we would want to grow faster than the system and gain share because talking about things in absolute terms is fraught with risks. If we were to give you a particular number it would have to be rooted in a time context. A figure for a time when the banking industry is growing at 23-24% would not hold when industry growth falls to 15-16% or 9-10%, not to mention 4.5-5%. The other thing is that with inflation having come down and real GDP remaining the same, banks cannot grow at 14-15%.
Our simple approach has been that with the economy growing at a certain rate in nominal terms, the banking industry should grow at a multiple of 1.2-1.3x the nominal GDP, and we a few percentage points faster—whether it’s 4%, 5% or 6% faster would vary from time to time. There will be short periods of time when the delta is much more; like if you look at the last quarter, the system came all the way down to 5% while we are growing almost 9% or 10% faster. But that’s not the normal pattern. Second, growth is never an absolute for us. We are looking at growing with a certain margin and a certain asset quality. So it’s a sort of three-pronged balance of growth.