BS Banking Annual 2016: 'Our mantra is, think money, think HDFC Bank'

By going digital, in the long run we see both top line and bottom line improving, said Aditya Puri Managing Director, HDFC Bank

Aditya Puri, managing director, HDFC Bank, is focusing on digitisation and customer conveniences, which he believes will lead the next phase of growth. Edited excerpts from an interview with Nupur Anand

What impact will demonetisation have on the economy and the banking sector?

Demonetisation has brought more money into the banking system. Savings that weren’t being used productively will now be used for investment and growth. Estimates of black money range from Rs 1.5-3 lakh crore, and it can be used constructively for transfer of wealth and building infrastructure. 

Yes, there has been pain, but the RBI and the banks have tried their best to minimise it. There may be difficulty in the transition period, but we will start seeing demand come back if the currency problem gets sorted out soon. I am very optimistic of its impact on the economy in the long run. 

Do you expect non-performing assets (NPA), especially in the small and medium enterprises (SME) segment, to increase as a result?

We haven’t seen stress in SME; in fact, we have got a lot of repayments. We may see some small rise in NPA but I don’t see it as a big issue. There can be some pain for a quarter or so, but the benefits such as ability to raise money more cheaply, opening of semi-urban and rural demand, getting more money into the system, etc., will be more beneficial in the long run, as this will help in creating demand. The fiscal situation will improve, as there will be more people in the net.

By when do you see corporate credit growth improving?

Within corporate credit, working capital credit has started coming back. Because of demonetisation there may be a slight blip but working capital demand will continue. Also, as the Union Budget will be advanced, investment demand will come earlier. We expect FY18 GDP growth at around 8.25 per cent. There may be a little pain in this quarter, but growth will be higher than estimated in the long run.

What are the bank’s growth plans?

More money coming into the system and the adoption of digital will lead to substantial growth, as penetration will improve. So that creates demand in consumption and will lead to growth in rural and semi-urban segments too. We expect our market share to improve and our dominance in the payment business to improve. We are also looking at increasing our government business.

Also, the adoption of digital will lead to reduction in cost of funds. Therefore, in the long run we see both top line and bottom line improving. Over a two- or three-year period, our cost-revenue ratio could reduce by 200-300 basis points. 

Your unsecured lending portfolio has been growing very rapidly. Do you expect this to continue?

As of now, my mantra is customer centricity — make it most convenient for the customer and deliver to him what he wants. If the customer wants an unsecured loan, then I will give it and that is how we will grow, instead of focusing on chasing targets. I want to be in a position where, when you think money, you think of HDFC Bank.

What’s new in the digital arena that we can see?

We have been introducing something new frequently and, going ahead, you will see more consumers and even merchants beginning to use the digital medium. So the change is that more people will adopt and the transformation to digital will improve. In the next leg of growth, the bank’s role in digital will move beyond lending and deposits. We will enable more services, and buying anything will be at the click of a button, whether it is a loan or advice. Why go to a bank or even an ATM? Also, the use of analytics and artificial intelligence can help to market better and also to change your cost, because whatever repetitive function used to be done by humans can now be done by robots.

Going ahead, you plan to focus on corporate borrowers. Does this increase the threat of delinquencies?

I think it is the other way round. In retail, the interest rate is higher, so I can take a higher delinquency unlike in corporate, where the rates are lower. Also, we are very clear that we have a set target market of customers, which is based on our belief in their repaying loans. In the corporate segment, loans should be able to generate enough revenue so that the customer can pay back. So we have a clear customer base and a stringent credit policy, as our credit and marketing people don’t report to the same person. Also, we don’t believe in ever-greening loans only to ensure that they don’t slip into NPA; we would rather exit it if we think it is likely to be a bad debt.

Apart from commercial banking, are you also looking at other businesses?

Yes. In investment banking, we are already at the second place in debt capital markets and we are also very good in primary issuances. We are now focusing on mergers and acquisitions, too.   

How do you see banking changing over the next two-three years?

Banking will undergo a fundamental change. As more people get connected and you can offer a variety of products, at a completely different turnaround time and price, banking will see huge growth in both loans and deposits. Everything will be based on convenience, price and trust, all of it happening in one click. It will change the cost dynamics, processing time and marketing strategy for the bank, as the customer will want convenience. Banks will have to deliver what the customer wants, where he wants and how he wants. Banks that are willing to change and offer this will grow. The future for banking is bright.