BS Banking Annual 2016: A different scale of banking

HDFC Bank is ahead of its peers in shareholder returns, presence in rural and semi-urban areas and innovations in digital banking

The spectre of stressed assets left a swathe of red across the financials of many banks, especially public sector banks, in 2015-16. The Reserve Bank of India’s Asset Quality Review last year resulted in banks beginning the process of recognising bad loans. As a result, banks were hit on both non-performing loans and profitability. 

In the first screening proposed by Business Standard, two filters were used — asset size of over Rs 50,000 crore and growth in net profit. The result was a dominance of new private sector banks and small public sector banks. 

The jury, headed by C M Vasudev, former Economic Affairs Secretary and former HDFC Bank Chairman, found this list limiting in the process of selecting the Business Standard Banker of the Year. It decided to modify the filters and went on to a more rigorous sampling to rise above “cold statistics”. Statistics, the jury argued, could be made favourable by pursuing narrow banking. A need was therefore felt to emphasise the risk-taking ability of the bank and its leader at a time when a slowing economy meant greater bad asset accretion in proportion to the rate of expansion of the lending book.

“We are trying to select the best banker. Should we award that to someone who is completely risk-averse and decided to not contribute much towards industrial development and rural penetration? I think not,” Vasudev said, setting the standard for the rest of the jury. 

The other jury members were former RBI Deputy Governor Anand Sinha; former RBI Deputy Governor and Senior Advisor, KPMG, H R Khan; Edelweiss Group Chairman Rashesh Shah; Ican Investment Advisors Chairman Anil Singhvi and Ambit Capital CEO - Institutional Equities Saurabh Mukherjea.  

The jury agreed that while profitability and asset quality health mattered, how the head of the bank had made it stronger over the years was also important. The jury increased the asset size filter to Rs 1 lakh crore, and looked at three-year pre-provisioning profit growth, net interest margin, return on assets, asset growth, gross non-performing assets as a percentage of advances and cost-to-income ratio. 

Based on the first filter of financial metrics, 13 banks and their chiefs were shortlisted. The jury then narrowed the scope further to three individuals. All three had numbers in their favour, so the jury went in for a subjective assessment.

Since Aditya Puri, managing director, HDFC Bank, was part of the final short-list, Vasudev, who is also a former chairman of HDFC Bank, said he would be guided by the other jury members, without compromising on the objective evaluation of the task at hand. After lengthy deliberations, the other members of the jury unanimously close HDFC Bank’s Aditya Puri as the winner for having maintained a balance between shareholder returns, the bank’s responsibility towards the society and furthering technological innovation in the financial domain. The chairman of the jury agreed. 

The jury emphasised that HDFC Bank’s journey was consistent over two decades and the bank is on a different scale compared to its peers on every parameter. The bank’s presence in semi-urban and rural areas, where it caters to small and medium enterprises, was discussed. Over half its branches are in these regions. 

The jury said the bank’s presence and innovations in the digital banking space were commendable. At the same time, its financial performance has been stellar: it has maintained healthy profits over the years and kept a tight leash on its asset quality. The jury appreciated that Puri’s skill of looking ahead had stood the bank in good stead. 

A graduate of Panjab University and a chartered accountant, Puri joined HDFC Bank as a founding member and managing director in 1994. Since then, he has taken the bank to great heights and it is now the second largest private sector bank in the country. Puri grew HDFC Bank through both organic and inorganic routes by acquiring Times Bank in 2000 and Centurion Bank of Punjab in 2008.

The bank’s net interest income grew 23.2 per cent year-on-year in 2015-16 and at 20.4 per cent a year over the past three years. Both profits prior to provisioning and net profit have grown at 20 per cent a year. Puri becomes the only banker to win the prestigious Business Standard Banker of the Year Award for the second time, having won the award earlier in 2013.