HDFC Bank sees profits more than doubling to $15 bn in 5 years after merger

CEO Sashidhar Jagdishan tells analysts merger with HDFC gives the lender the opportunity to double its balance sheet every five years

The merger of HDFC Bank and HDFC will create a financial powerhouse, which will see the lender more than double its profits as well as balance sheet size in five years, Sashidhar Jagdishan, MD & CEO of HDFC Bank, said on Tuesday.

While addressing analysts, Jagdishan said capital or loan growth will not be an issue for the bank. The only challenge will be liabilities. To garner more deposits, the bank will add 1,500 to 2,000 branches each year for the next three years, which will result in doubling of the distribution network by three years, he said. According to Jagdishan, branches are an extremely important fulcrum for garnering deposits. As on March-end, HDFC Bank had 6,300 branches.

“Here is an opportunity where on the effective date of merger we will see $6-7 billion of profits that will get accrued on an annual basis. In five years time, with reasonable growth of 18–22 per cent, we will see $14–15 billion profits. That’s the kind of scale we are talking about,” Jagdishan said.

“Growth is not going to be an issue at all. It is going to be pouring out of our ears. The only limitation will be liabilities,” he said.

He said the bank has enough capital for growth and will not need to raise capital till 2030. “All our franchises, whether it is corporate, SME, or retail, all are firing on all fronts. Our asset quality is extremely good,” he said.

Talking about the opportunity that the merger provided, Jagdishan said: “It’s a scale opportunity for us. Here's a once-in -a-lifetime opportunity for the organisation to double every five years. If the organisation had the visibility of 20–30 years of runway, I think post merger we will have a runway of 50–100 years. So this is going to be a durable organisation.”

On the loan side, the bank is gearing up to disburse retail loans like auto and personal loans in 10 seconds to its existing customers, he said.

According to a presentation by HDFC Bank, 77 million pre-approved offers are available to customers across retail products, aggregating to over Rs 32 trillion, which is six times the total retail loans outstanding as on March 2022.

HDFC Bank expects the approvals for the merger to start coming from September-October of 2022, starting with the Competition Commission of India.

Once such an approval comes, the bank will fast track HDFC’s home loan disbursement from its branches, said Jagdishan. Right now, only 2,000 branches of HDFC Bank sell home loans of HDFC.

“Now it is 2,000 branches, by the time the merger is consummated you will see all our branches disbursing home loans,” he said. The entities expect all the approvals to come in the next 18 months.

Jagdishan also took the opportunity to clear the air on the bank’s increasing focus on wholesale loans in the last two years, which is seen by the analysts not as margin accretive.

“The corporate business is as profitable as the SME or retail business. It has 2%-plus ROA and 18-plus+ RoE. Otherwise we don’t do this business,” he said.

Commenting about the bank not being apologetic about the proportionate growth in corporate loans as compared to retail, Jagdishan said, “In the last two years, when we expanded the wholesale book to 56% - from 45-46% - we had a once-in-a-lifetime opportunity to be the preferred bankin the corporate side, we grabbed it with both our hands.”

THE ROAD AHEAD

• To add 1,500-2,000 branches each year for the next three years
• Branch network to double in three years, key for garnering deposits
• To disburse retail loans in 10 seconds to existing customers 
• 77 million pre-approved offers available to customers across retail products, aggregating to over Rs 32 trillion
• Approvals for merger to come from September-October
• Will not need to raise capital till 2030