How is the integration of Centurion-Bank of Punjab progressing? You inherited some assets which required cleaning up.
We got a bank with a huge distribution network, though it was not used to the extent it should have been because of a lack of products. From 700-odd branches in November last year, we now have over 1,400 branches. The scope of the bank has changed.Centurion Bank of Punjab had a balance sheet that was only 18 per cent our size, but they had a trained workforce. We said if we can bring this distribution to our level of efficiency, if we can improve the asset quality and implement our policies and procedures, then we would grow the bank by 50 per cent. This is exactly what has happened.
When we did the pooled accounting, we brought their existing portfolio based on provision and write-off to our level. So, what is now left is the good, old, conservative and safe HDFC Bank that has digested Centurion Bank of Punjab. As of last quarter, our margins are back to the old level and there is hardly any difference in the gross and net NPA after we had done the clean-up. The cost to revenue ratio went up but we expect that to come down by 1-1.5 per cent every year as we bring in efficiencies. We find that we have increased the productivity to HDFC Bank levels.
Are you looking at more acquisitions?
Not at this point. In an acquisition, we look at a bank which has a branch presence that can add to your scale, has geographic presence and a workforce that is young and technology-savvy. It is difficult to get a bank like that at present.
When do we see HDFC Bank becoming the largest private bank?
HDFC Bank is the private bank with the largest network. In the areas that we operate in, we are second only to State Bank of India. In most of our products, we are either number one or number two. As we see no shortage of demand in India, we have chosen not to go to overseas markets. We have maintained our margins, we have a healthy capital adequacy ratio, we are not suffering any strain on our portfolio and we are continuing to grow at about 30 per cent. If the GDP grows at 6 per cent, we will grow by 20-25 per cent. If the growth is 7 per cent, our growth will be 25-30 per cent.
What are the areas of concern?
As a financial system, we are safe. At the moment, there is no increase in delinquency. Also, we largely deal with top-tier corporates. Whatever strain will come in the SME segment will come six months from now. There will be certain sectors that will be hit, but unless you are a totally marginal player, you can make marginal profits for some time.
So far, the viability of companies has not come into question. Largely, we are not in sectors like housing finance, real estate developers and some of the other sectors. We do not see a major change in our portfolio. We have always had gross NPAs in the range of 1.5-2 per cent and net NPAs of 0.5-0.75 per cent and we will remain in the same range. There will be some strain on our customers and we are willing to help them out.
There is once again talk of HDFC-HDFC Bank merger…
There is no official discussion on a merger. There is a possibility of a merger, which we have been saying for the last three years. But a merger will only happen if it is beneficial for both companies. They (HDFC) do not have CRR, SLR or priority sector requirement. We continue to look at it, but there is nothing that has changed.
Does retail lending stand a chance? You seemed to have lost out in that segment earlier.
We have an under-penetrated retail market. Our retail portfolio is safe and sound. We have stuck to a certain market and we do not want people to be over-extended. We were willing to give up market share if we thought the pricing was not right for us to make some profit after factoring in defaults. We are maintaining the growth we saw in the first half though there was a bit of a slowdown in November due to auto etc. There is no need to lower credit standards to achieve growth.
We have applied for new branches. Around 50 per cent of the new branches will be in well-developed urban areas, 20-25 per cent in semi-urban areas and the rest in under-banked areas.
What are your plans for i-banking and NBFC?
Our foray into i-banking is to ensure that we can arrange debt funding. It is just completing the requirements of our customers. The NBFC has a different business model and a different segment to look at. What happened to a lot of NBFCs is because they went overboard. The problem was with 20-25 per cent of the market, but 80 per cent of the market is still good.
Is it a group strategy that HDFC will get into new businesses while you will be a distributor?
The strength of HDFC Bank is its distribution platform. I have no expertise in insurance or mutual funds. It is a matter of choice and we feel vindicated because it also needs a large amount of capital. I am earning three quarters of the business of mutual fund through a much wider audience. At present, insurance distribution is more profitable than underwriting. So, we make very good money without putting capital.
At some point you were looking at global acquisitions…
We had said that we will grow overseas for businesses where we have an advantage, which we have done by servicing NRIs. We have a representative office in the Gulf, we have a branch in Bahrain and we have arrangements with other banks in Africa and the US and this is working very well. Then, we wanted to intermediate in short-term trade, provided we get matched funds. There is so much growth in the country that we will continue to focus on India.
Are depositors moving from private banks to public sector players?
In recent months, only two banks have really gained. They are State Bank of India and us.