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‘We’ll Be More Aggressive’

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Aditya Puri, Managing Director, HDFC Bank (Pic by Satheesh Nair) Aditya Puri (58) does not particularly like to go out and pump hands. Instead, he walks into his Lower Parel office sharp at 8.30 every morning. He does not use a cellphone either. Yet, shy he is not. Only, he has never tried to ape any of his voluble peers. Today, when HDFC Bank is on the cusp of a dramatic shift from its conservative, staid standards, a few rivals are in disarray (or, are in pause mode), Puri has sensed his opportunity and wants to move in for the kill. The buyout of Centurion Bank of Punjab (CBoP) in 2008 has given him the firepower to do so. “Earlier I was a zero. Now I am a hero,” he quips. Businessworld ’s Raghu Mohan engaged Puri on the plot ahead. Excerpts. At what stage of evolution is HDFC Bank in at this point? Let me define where we are now. We have always stated that in the businesses we are in, we would like to be in the Top 3. Now within this, where are we? Our capital adequacy is at 15.6 per cent, and we will get about Rs 4,000 crore from HDFC in Novem-ber, and it will go up by 50 to 100 basis points or so. We have an excellent brand. And we are in the Top 3 wherever we are present. We continue to maintain that India is one of the best opportunities for financial services across the world for the next five to 10 years. Our savings rate is at about 33 per cent; and we are not over-borrowed. Unlike in the US, where both corporates and individuals were over-leveraged. We have headroom. So, demand is not a problem, and the financial services out here is an execution story. It is not too complicated a story to do well from here. Now, we have more than doubled our distribution — from 700-odd branches, we will by the end of the year go to 1,650 or so. From now on, we will work in two stages. Firstly, we have to bring CBoP’s branches to our level of efficiency, and we will be able to complete it in the next 24 months or so. And (secondly) that we have the distribution and the leadership, we are pushing hard to grow. One gets the sense that you are all set to break the mould of a staid bank... The media gives (a) tag. Now you are calling me a hero, earlier you called me a zero. Our opportunities are larger given the wider distribution. You see, at this point, the foreign banks are in disarray. And so are non-banking finance companies. So, relative to the market, we will be more aggressive. Despite all this talk about state-run banks growing faster, how many have grown faster in retail than HDFC Bank? We will not run after market share, and have no burning desire to be No. 1 if such growth is to raise issues later. And I am not going to take names here. If that is the case, how do you react to the view that banks like yours are not dropping lending rates, and are thereby choking consumption demand? That is a very, very good question. Of late, whether it is the media or otherwise, this is a completely wrong statement. It is primarily biased towards the PLR (prime lending rate). Only 15 per cent of our lending is linked to the PLR. You would also agree that banking in India is not a monopoly. I cannot be charging a higher rate and hope that people will still come to HDFC Bank because they like my face. I am growing at 40 per cent. As far as retail lending goes, I am the largest player today. Who else is there in retail lending? As far as not promoting consumption, I take umbrage to such statements. We are the people who are promoting it the most. Most people have stopped or slowed down. I am one of the largest contributors to this (boosting consumption). And so I do not understand where this statement comes from. Nor do I want to comment on this point. I only want to comment on the fact that the largest lender in retail is HDFC Bank. You are in effect saying that the PLR is basically a humbug story... I am not saying that it is a humbug story. It may not be a humbug to people who lend 90 per cent of their loans to the PLR. I am only saying that only 15 per cent of my loans are linked to the PLR. So taking the PLR as the rate of lending, and consequently making a statement that other banks have a lower rate is wrong. The PLR as a concept has largely disappeared in the banking world. It was based on the concept that the money market had any amount of funds; that it would never cease. And on which you could fund your entire portfolio. Well, there is no such thing anywhere in the world. And in India, it (bank funds) is largely out of deposits... So, then how can you have a PLR? And deposit rates are different. The concept of PLR was determined to have the difference between the rate of interest on government securities and the credit spread added to it. The PLR in India is a function of cost of funds, operations and default rate and is not ‘product -specific’. Nobody, but nobody does consumer lending linked to the PLR in this country. What is your view on opening up of the banking sector? You mean foreign banks? What foreign banks? You think Citibank, Bank of America, HSBC or your Barclays will come here? Let them solve their problems elsewhere. The other day, the governor (RBI) made a good statement that this (opening up) should be put on hold lest the condition overseas spreads to ‘our pristine Indian financial system’ (smiles). And what about state-run banks being opened up to banks like yours? Well, that is an area which is debatable — on both sides. The people at these banks are efficient. The issue is not whether you open it up or not. As long as there is government character, and if you are going to limit salaries and the rewards they are going to get, I do not know whether we can make very much of a difference. I got to ask you this — what is your personal view on a merger between HDFC and HDFC Bank? Are you against such a merger? No. You please understand that I am a professional. I am not for or against anything. I am here for the shareholder. At this point, a merger does not make sense because of the downside to such a merger being more certain than the upside. HDFC has a lower SLR (statutory liquidity ratio) requirement, no CRR (cash reserve ratio) and a lower tax rate. For merging the two, the objective should be that two plus two would give you two-and-a-quarter, and not 1.75. So, regulations have to change here. Or there should be a more sensible approach, which is a holding company. We are all for it if it makes sense. Such a merger will be based on a professional assessment of whether it is worth it. There is no difference of opinion between HDFC and HDFC Bank on this. And we have been saying this for 10 years, but you people need copy and you write it. You can write again! And what about whispers that the merger has not happened so far because of differences with (Deepak) Parekh... Kaun bol raha hai yeh sab (who has been saying this?) I have known him for 30 years. You think I would be here if that was the case? All this is rubbish. (Businessworld Issue Dated 7-13 July 2009)