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BW Businessworld

HDFC Bank: The Winner Surprises None

The pack-leader continues to remind us why it is so

Photo Credit : Subhabrata Das


In banking, there’s HDFC Bank and then you have the rest. No stranger to awards and accolades, the bank has bagged the ‘Best Large-sized Bank’ and ‘Best Fastest Growing Bank’ Award in BW Businessworld’s Best Banks’ Survey 2016.

In fiscal 2016, HDFC Bank’s  balance sheet grew by 20 per cent to Rs 708,846 crore; total deposits were up by 21.2 per cent at Rs 546,424 crore while net advances were up 27.1 per cent at Rs 464,594 crore. This growth has come at a time when the banking industry has hit the pause button due to capital constraints (state-run banks in the main), dud-loans and in general an aversion to credit, albeit largely on the corporate lending side. Its extensive branch network and emphasis on innovation across multiple channels has enabled the bank to drive significant penetration on the retail side where loans grew by 28.6 per cent to Rs 248,3019 crore.

The bank achieved this growth without a blotch on its books on the non-performing assets (NPA) front. What’s a more remarkable feat is the bank did not even twitch on dud-loans even after the asset quality review or AQR in fiscal 2016. Its ‘gross’ NPAs stood at 0.94 per cent, which is unparalleled in the banking sector for such a large bank. Additionally the bank’s more conservative provisioning requirements, over and above regulatory requirements, has helped keep net-NPA at 0.3 per cent.

How To Beat The Odds
The bank has in place a comprehensive centralised risk-management function, independent from the operations and business units of the bank – with distinct policies and procedures for retail and wholesale lending businesses.

“You can only take so much of NPAs and default, depending on the product,” says Puri. “Your appraisal process has to be such that you develop appropriate models through algorithms that say, if the credit looks like this, then the probability of default should be ‘x’. We factor in that and other costs, and then arrive at a return on equity,” he adds.

What distinguishes the bank is the continuous monitoring of its credit quality. If the bank sees a rise in a geography or product, the credit lines are immediately discontinued and the product is tweaked or changed.  

For any lending business, a low cost-deposit base (current and savings accounts or CASA) is the key to profitable growth. HDFC Bank has mastered the art of garnering deposits due to its approach of providing holistic services across the value chain, and multiple services across platforms.  Savings account deposits grew by 18.4 per cent to Rs 147,886 crore while those under current accounts grew by 20.2 per cent to Rs 88,425 crore. The share of proportion of CASA to total deposits was at 43 per cent.

Over the years, as part of its efforts to expand product offerings, the bank has targeted sectors with product offerings for all the players within the sector. For example, within investments, the bank offers banking services to stock exchanges, brokers as well as investors, thus ensuring that the cash is circulated with the bank, which gives it the ‘float’, which, in turn, helps boost its CASA.

When Access Is Key
Instant access and results have become the norm now. And to keep up with the pace, HDFC Bank sure has its finger on the pulse. “In today’s world, when people are looking at convenience, you can access us through a device of your choice, and we will give you the entire range in a very convenient manner. It means I will have higher balances in my savings accounts than somebody else, because of the larger product range, and the services we offer.”

The bank is also tapping its existing customer base to cross-sell new products – 75 per cent of the new plastic issued have been to existing customers. And to drive further usage of its cards, the bank has embarked on a strategy to acquire merchant businesses, which has seen its total number of point of sale machines cross 2.8 lakh merchants.

HDFC Bank has, from the outset, incorporated various new technologies to offer a smooth experience to its customers. Technology, for instance, is used to make credit appraisals and also to enable taking banking to the masses. The bank has implemented  ‘Desktop Virtualisation’ – a cloud-technology solution to overcome problems in telecom networks; ‘Quickbanking’ – a mobile app, catering to the offline internet too has been launched, which has enabled the bank to reach out to the masses in the rural areas, where logistics services is often a nightmare.  

Puri says the bank is constantly trying out new technologies such as the front-office robots on a small scale. “The way things are moving, robotics and artificial intelligence will allow you to do routine functions automatically,” he says.  “We have robots looking at query resolution, credit-approval process and scanning of documents.”

For its corporate clients, the bank extends its ‘trade on net’ offering on mobile, enabling customers to avail remittances, letters of credit, and guarantees through the net. What also helps the bank’s growth is its cutting-edge analytics and customer relationships management, which enables the bank to understand the customer risk profile,  improve fraud control and collections; and even keep a tab on customer’s life cycle and offer appropriate products tailored to their individual profiles.

Puri believes a comprehensive product offering, which  provides products and services across various platforms of whether it be Internet, mobile, ATMs and other branch networks, are key to driving the penetration of products. The bank added 506 branches during the fiscal taking its physical distribution network to 4,520 branches in 2,587 cities and towns (4,014 branches in 2,464 cities and towns); the number of ATMs went up to 12,000 (11,766). The bank’s focus on semi-urban and under-banked markets continued with 55 per cent of its branches in such areas.

Puri highlights the turnaround time – the bank can take credit approval decisions ranging from 10 seconds to three hours, depending on the availability of an individual’s credit information with the bank. It offers such instant credit services to corporates as well through its technology platforms while opening letters of credit, and other lines of credit.

HDFC Bank’s focus on market share by striking an optimal balance between risk and margins. Its strategy of testing products on a limited scale before rolling it out commercially, helps it understand the risks associated with lending products better.

As Puri puts it: “If you can’t cross all the Ts and dot all the Is, then you don’t lend. We don’t keep away from anything or get into anything. We examine it. We test it out in a small scale, and we never bet the bank.”

When it rolled up shutters in 1995, HDFC Bank (among the home-grown) was the first to put in place a technological platform that allowed the bank to offer real-time banking across its channels. In 2001 (just when retail banking caught fire), it was among the early birds to data-warehouse and adopt analytics – it helps banks (and firms) get to know what you do, why you do, how many times you do what you do, and how to get you to do it more often. The idea behind it is to get to know you more than a wee better than you know yourself; and make money out of it.

What all of this tells you is how well the bank has travelled over time. The secret: the bank has always travelled with the times.