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BW Businessworld

‘Technology Off-take Is Faster In Rural India’

In an interview with BW Businessworld, Puri talks about the bank’s business strategy and the progress of the economy

Photo Credit : Subhabrata Das

For someone who doesn’t like to use too many gadgets, HDFC Bank’s Managing Director Aditya Puri makes sure the bank is on top of all things tech. Puri does not necessarily go for volumes as long as there’s profitability. And as his peers say that if Puri is in business, it means it makes business sense.  In an interview  with BW Businessworld’s Clifford Alvares, Puri talks about the bank’s business strategy and the progress of the economy.

Edited excerpts:

HDFC Bank has been known for its clean balance sheet, risk-management systems and consistent performance. What is the secret?

We determine the markets we need to access, the credit risk we will take, procedures and policies we will follow. Consequently, the net credit risks that result lead to pricing a product. We use technology to provide a better product at a good price, with integrity and fairness. Now, when this is done, we have found performance should be consistent.

What is HDFC Bank’s strategy in building a robust loan book, that is growing decently, along with low NPAs?  
The credit side is simple. Every product has certain risks. But one has to determine the default rate. You have to monitor this at all times to check if the assumptions made are correct. If the result differs, one has to analyse why. Or see how you need to tweak it so that you are able to have a business that provides returns to shareholders. We have to make sure that whatever money you have borrowed, you are able to repay. The loans must come back, and if there is a default rate, it should be there in your pricing.

The key to building a loan book is complemented by a strong liabilities franchise. HDFC Bank is one of the best on this parameter, too?   
Our liabilities are a consequence of our business model. We are market leaders by far in cash management; that is one source of money. We have gone to specific segments like stock markets where we are bankers to individuals, to brokers and to the exchange. So, the money circulates. Just as we have done on the asset side, we have done on the liability side, using technology and products to provide services to customers based on which we get balances. These cannot be got on price. They have to be the result of a business model and services.

How do you use AI  and automation to reduce costs and improve efficiencies?     
Two things: the ability to analyse has increased with computing power, and information is available and everybody is connected. We have used technology to change the process, and enhance convenience. This results in greater efficiency for us and reduced costs. We have similar processes on ‘trade on net’, where one can open letters of credit.

We have used technology to provide frictionless service across any device suitable to you; then provide you straight-through processing in the fastest turnaround time at the right price. We have used technology to simplify process.

HDFC Bank had introduced a robot in a branch (to welcome customers). Is this gimmick or has there been any major impact?    
That is not a gimmick. It is to test whether a robot can provide front-office services. This is real robot. More important are virtual robots like chatbot, which performs routine functions. We have robots looking at customer service, query resolution, credit-approval processes as well as scanning documents. Artificial intelligence will keep improving the virtual robots.

Will the strategy of opening more branches change given advancements in technology and mobile banking?    
We are opening fewer branches. Also, we have reduced their sizes. Obviously, with each new technology we overemphasize its importance. Thankfully, there is a thing called human frailty, and human minds and human discretion will not make us robots. So, will the branch vanish? No. More efficient? Yes.

We are positioning ourselves to provide requisite services. We are not demanding you pay through a debit card, payzap wallet, credit card, UPI, or QR code. Or deal with us through mobile or laptop. Go to any place, and we provide services through the means you originally accessed.

In the past few years, HDFC Bank has sharpened its focus on rural India. Agri-tech seems to be one way. How is it panning out?    
Our rural-India focus was based on two factors. Sixty per cent of the population still lives in semi-urban and rural India. We began our semi-urban and rural journey maybe 5-6 years ago so as not to miss out on 60 per cent of India. But, they have different needs. We conducted many experiments. We looked at what products a farmer wants. How s/he covers requirements? Where s/he purchases consumer durables? What kind of service s/he wants. In initial years, difficulties arose on the cost side and in delinquencies.

In the past three years, we have streamlined our model and scaled it up. It is growing almost 50 per cent faster than in urban India. We offer a complete range there, including even a shopping portal. The surprising part is that technology off-take is faster in semi-urban and rural India.

We should have known this. Because, who suffers the most from logistical problems? Rural India. They too should logistically benefit from efficiency through technology.

We also have graded our technology offerings: first, missed-call banking, the most elementary; then, HDFC Internet Banking Lite on a feature phone.

We are enthusiastic about semi-urban and rural India: it is profitable and delinquencies are not higher. We are able to manage it based on how we develop our models cost-effectively.

Despite demonetisaton, great demand for cash persists. Your views?    
No economy in the world can do without cash. The amount of cash in an economy ranges from the Scandinavian countries’ low of about 15-20 per cent to the highest, about 90 per cent. I don’t think we will ever be a no-cash economy. But we shouldn’t be a 90 per cent cash economy. That won’t happen overnight.

Digital transactions have gone up 50 per cent. But the infrastructure has been laid down. POS terminals have increased 200-300 per cent. AadhaarPay has gone up, UPI and the QR code have come in. As people realise their convenience and security, they will get on the bandwagon. So, in 2-3 years, we will be down to 30-40 per cent. In a country like India, that’s the best we can hope for.

Credit growth is still very low? Will investment demand pick up?   
First, oil-company borrowings have stopped. Distribution company borrowings have been shifted to Uday Bonds. Much money has come into mutual funds, and is being lent to corporates. Taking all that into account, I would say, credit growth is around 10-11 per cent and going up. Is it enough? No. But, it is rising.

Demand for working capital and from consumers exists. Understanding this, the finance minister said that to kick start the economy, the government will spend.

Various programmes are needed for job creation. So, we have Make in India, Skill India, semi-urban and rural irrigation. There are various yojanas for small entrepreneurs. Hence, the government is going to be the initial catalyst. May be 12 months from now, you will start to get private demand.

Where do you see the economy in the next two years?    

Our current account deficit is under control, and our fiscal deficit is too. Allocation in power, mining, coal, telecoms have become transparent. Are we moving toward a system of taking subsidies to the right people? I think the direct benefit transfer through Aadhar and Jan-Dhan accounts is a very good initiative.

The focus now is on irrigation and power, and roads in semi-urban and rural areas. In a difficult global environment, we are growing 7-7.5 per cent, which would lead to job creation, skills, infrastructure development. High-level corruption has declined. We are moving toward a more balanced future, and will now be more transparent with GST and the bankruptcy code. We are attempting to solve the NPA problem. So I think it is all pretty good.