Aditya Puri, managing director and chief executive officer, HDFC Bank, believes the economy may have bottomed out and interest rates have peaked though it could be a while before growth picks up meaningfully. Puri says his bank has never been so optimistic about the future. In an interview with Vishwanath Nair and Shashidhar KJ, the MD observes that the gap between incumbents and new entrants to the banking system will remain for a long time given that the former are also expanding their operations and investing in technology. Edited excerpts:
Have the project clearances by the government over the past few months started making an impact?
They won?t have any impact till the third or fourth quarter of the coming year because the state governments also need to get involved and the money needs to start flowing in. If we start doing about 5.5% by the third quarter and 5.75% by the fourth quarter, we should be happy. I?ve just come back from Europe and nobody there is expecting any miracles in India, they just want a clear path forward. If we get a stable government, India is the flavour of the day for foreign investors.
HDFC Bank has usually been associated with 30% year-on-year growth each quarter. This time around, you missed that….
We are very clear that the bank has performed as it has said it would, in a realistic manner. We are not here to live up to other people?s expectations which are not based on facts. What we have stated all along is that our growth parameter is 3.2 times real GDP, which is the rate at which credit will grow and we will gain a market share of 4-6%. Can I grow at the same rate when the GDP is 7% and then falls to 4.5%? In old English, this is called Elementary, My Dear Watson! Today, our bank is more optimistically positioned than ever before in its history. The brand is impeccable, there?s no strain on the portfolio and we have provisioned for NPAs. We have hardly any restructured assets, our margins are intact and we have installed the latest technology. We are the only bank to have taken the complete suite of products to semi-urban and rural India over the last four years. We have the products, distribution, technology and the lowest funding cost. We believe that the economy has bottomed out and from here onwards, it will be an improvement.
The central bank has recently released guidelines on how to deal with errant promoters and better management of NPAs. What are your thoughts? Do you think that the Indian promoters have it too easy?
I think the steps are good but we already do more than that. There is no point in painting everyone with the same brush. Even the Reserve Bank of India (RBI) has got nothing against promoters.
The normal rule of commercial finance is that it is the promoter who is taking the risk hence he will get the highest return. If the project fails, the first hit has to be taken by the promoter.
He either brings in more capital, or we auction the asset. I think that is only fair. I would say that maybe our systems did not enforce its decisions adequately. That is all the central bank is saying.
The new bank licences are only a few weeks away. How long do you think it will be before they become serious competition?
If we are working as we have worked all these years, the way technology, customer service and the economy is moving, there are going to be rapid changes with major investments needed.
The gap is going to remain for a very long time. We add about 500 branches and 2.5 million customers every year, over and above the 20 million customers that we have. We put in tremendous investments in getting our technology right. We are also leaders in cash management, stock exchange, commodity exchange, and we are among the top in government business.
What is the stress point in your retail lending portfolio?
We have not seen any stress from individual borrowers, other than in the commercial vehicles segment, which has stress at a slightly higher level. As the economy recovers, commercial vehicles will move with the economy.
Experts believe there is no transmission of RBI’s actions by the banks. What do you have to say about this? Have interest rates peaked?
Rate hikes and policy rates are intended to be directional and transmission is a function of the deposit costs. If you have a tight money situation where the deposit rates do not go down, then funding costs will remain high since the amounts accessed in the call market or from the Reserve Bank are a very small proportion of the total borrowing. So, we need to dispel the notion that as soon as there is a rate hike or cut, there will be immediate transmission; there will always be a time lag.
I should think that the rates have peaked because inflation is easing and it is likely rates should stay stable for the remainder of the year unless there is a major shock or expectations are belied on inflation. The RBI Governor has clearly said that he will balance inflation and growth.