HDFC Bank is aiming to lower its credit-deposit (CD) ratio from 104% as quickly as possible, said MD & CEO Sashidhar Jagdishan in an analyst call. “We have not received any regulatory prescription (from the Reserve Bank of India), but the thought process is that we will try and get this done (lower CD ratio) as quickly as possible and still maintain the objective of profitable growth,” he said in an analyst call post the bank’s June quarter results.
The country’s largest private bank’s overall advances grew at 53% year-on-year (y-o-y) to Rs 24.86 trillion whereas deposits grew 24% to Rs 23.79 trillion in the June quarter, thereby leading to credit exceeding deposit growth. Sequentially, deposits growth fell 7%.
Jagdishan acknowledged that the overall growth in deposits was lower than expected in Q1 due to two factors — higher outflow from current account balances and running down of `16,000 crore of erstwhile HDFC’s non-retail deposits. “I know that most important part of our strategy is deposits. Are we happy with the numbers that have been reported? Not really. It has fallen short of our expectation,” he said.
His commentary comes a day after RBI governor Shakitkanta Das, at the FE Modern BFSI Summit, said that banks’ credit growth should not run miles ahead of deposit. “Deposit mobilisation has been lagging credit growth for some time now. This may potentially expose the system to structural liquidity issues,” Das said.
“While there could be a debate regarding ‘deposits funding loans’ vis-à-vis ‘loans funding deposits’, the current regulatory concern stems from the fact that there could be structural changes happening which banks need to recognise and, accordingly, devise their strategies,” Das added.
Jagadisan added that the bank wants its ground-level teams and large distribution network to focus on basics on a day-to-day basis. “Focusing on period end numbers is leading to some unintended performance-related pressures, which we want to avoid,” he added.
Even though the headline deposit growth number appears weak, CFO Srinivasan Vaidyanathan said the lender added 2.2 million new customer relationships in the April-June quarter, in line with last quarter, which brings in higher deposit balances. Monthly credit inflows, in comparison with last year, is up roughly 20%, he said.
Further, Jagdishan said that despite challenges in deposit accretion, after the merger of HDFC, the bank has delivered stability across key metrics. The bank’s net interest margin (NIM), he said, has been in the 3.4-3.5% range post-merger, while low-cost current account and savings account (CASA) has been in the 36-38% range.
Cost to income ratio of 40-41%, gross bad loan ratio of 1.2-1.4% and return on asset ratio (RoA) of 1.9-2.1% post-merger shows the core stability of business metrics in the bank.