State Bank of India (SBI) is cognisant of the competitive impact of the merger of Housing Development Finance Corporation (HDFC) into HDFC Bank and is gearing up to meet the challenge, chairman Dinesh Khara said at the bank’s 67th annual general meeting (AGM).
“SBI is the largest home loan provider in the country. Our home loan market share stands at 35.3% and we are very mindful of the HDFC-HDFC Bank merger and are taking necessary steps to counter the emerging competition,” Khara said in response to a question from a shareholder.
The addition of HDFC’s mortgage portfolio to HDFC Bank’s loan book could pose a challenge to SBI’s dominance in the home loan market. The value of SBI’s outstanding home loans stood at Rs 5.62 trillion at end-March 2022. On a pro forma basis, HDFC Bank and HDFC had combined mortgages worth Rs 5.9 trillion, based on end-December 2021 numbers.
SBI and HDFC Bank are the two largest banks in the country, in that order, and they have both underlined the importance of combining their brick-and-mortar presence along with digital capabilities to enhance their customer base. On Wednesday, Khara said SBI will focus on customer outreach through its physical branches as well as digital channels.
According to SBI’s annual report for FY22, it has 467.7 million customers, 22,266 branches and 68,016 business correspondent outlets. The value of SBI’s domestic deposits was Rs 39.2 trillion. In comparison, HDFC Bank had over 70 million customers, 6,300 branches, 21,000 banking outlets and deposits worth Rs 15.6 trillion as on March 31, 2022.
While explaining the rationale behind HDFC Bank’s merger with its parent, MD & CEO Sashidhar Jagdishan has emphasised that only 2% of the bank’s customers source their home loans through it, while 5% get them from other institutions. “Home loan customers typically keep deposits that are five to seven times that of other retail customers, and about 70% of HDFC Ltd’s customers do not bank with us,” Jagdishan said in HDFC Bank’s annual report for FY22.
The challenge before HDFC Bank on the road to the merger is garnering of sufficient deposits to meet reserve requirements. The bank plans to focus on its branch network as a key engine for deposit mobilisation and has a target of nearly doubling its network in the next three-five years by opening 1,500 to 2,000 branches every year.
SBI, on its part, is enhancing the use of digital channels, especially its Yono app, in sourcing new customers. In FY22, the bank opened 96% of eligible savings accounts through the Yono platform, which it now wishes to extend to customers of other banks as well. In a recent interview with FE, Khara said SBI sees Yono as a digital bank within the bank. “We are trying to rope in new-to-bank customers as well, initially through the payment mechanism. Thereafter, we can offer them our large range of services,” he said.