Not eyeing growth just for the sake of market share, says HDFC Bank’s Jagdishan

Jagdishan spoke to Rahul Jain, managing director of global investment research at Goldman Sachs India Securities Pvt Ltd, a replay of which is available on the bank’s Youtube channel.

“As I said, we are not in the quantity game at all; we do not want to grow just for the sake of market share. This is not a new philosophy,” said Jagdishan.

He highlighted the bank’s consistent performance in net interest margins, which have remained in the range of 4-4.4% over the years, excluding the integration effects of the Housing Development Finance Corp Ltd (HDFC) merger. The bank’s strategy, according to Jagdishan, involves adjusting its risk-based pricing model to maintain these margins, accounting for the evolving cost of funds.

“To that extent, you will see our ALCO (asset liability committee) constantly raising the threshold level so that we do not go down the margin ladder. Incrementally, we are reasonably sanguine that we should manage that,” he said.

The bank reported a net interest margin–a key metric of profitability–of 3.4% in the three months through December, following which its shares had tanked.

Mint reported last month how for the coming fiscal year, HDFC Bank is building a plan to raise the share of retail loans in its loan book, and tap individuals to park more deposits. At present, 54% of its loans are to retail borrowers, including mortgage and non-mortgage categories, while wholesale loans account for the remaining 46%.

“You have seen it in the past that any exuberance in pricing, any exuberance in hard ball-based pricing strategies is all short-term in nature,” Jagdishan said. “I think we are a long play and therefore we are happy to wait till these corrections can happen but we are not going to be compromising both on margins and risk.”

Jagdishan also touched upon the bank’s cautious approach to deposit growth, especially during periods of tight liquidity when deposit rates for larger amounts tend to rise. The bank has chosen not to chase high-cost deposits, he said, adding that, “This means that not only did we not participate, we had to give up some of the ones which were there and came up for maturities.”

The lender reported a 62% loan growth and a 27.7% increase in deposits for the December quarter.

In a post-earnings call last month, chief financial officer Srinivasan Vaidyanathan had said that while retail deposits saw healthy growth of ₹53,000 crore in Q3 sequentially, outstanding wholesale deposits shrunk ₹11,800 crore. He attributed this to the bank’s focus on more stable, less price-sensitive retail deposits over the more volatile wholesale deposits.

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Published: 20 Feb 2024, 02:46 PM IST