HDFC Bank Ready for Industrial Uptake & Economy

May 28, 2014 · Author: · Category: bank 

Mr Paresh Sukthankar, Deputy Managing Director reiterated that the bank is well positioned to exploit an investment cycle recovery – the stable funding base and capital position are key strengths. Operating leverage is still to play out and cost-income could improve further.

HDFC Bank should see a steady upturn in system loan growth to ~16% in FY15 and 18-20% in FY16. Management believes its strong balance sheet gives it an opportunity to strongly participate in any recovery, given its low NPLs and strong capital position. Low system deposit growth is a risk and management believes a focus on its deposit base remains critical to enabling strong balance sheet growth.

HDFC bank foresees some of the key factors driving greater cost efficiencies holding good for another 1-2 years. The key factors have been: a) operating leverage from the large investments in branches and infrastructure in the last 3-4 years, which could continue for some time. A comprehensive bank-wide cost-cutting exercise – these benefits could partially unwind if growth accelerates; and a structural tech-based improvement in retail systems and processes that are raising customer service levels, efficiencies, and costs.

HDFC Bank Capital Raising
The board has recommended a Rs100B capital-raising (~5% dilution), proposed for sometime in FY15 (shareholder approval is still awaited). The quantum of dilution is smaller than the typical 10% dilutions of the past, and it’s also at a higher level of CAR than usual. Management believes that the CAR should go back to its previous peak
and stressed the need to keep a strong capital base, given the general regulatory and economic environment.

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