“We are not apologetic about the decision to go for the merger,” says HDFC Bank chief
HDFC Bank is an institution which is going to be a long play in the Indian economy, said MD & CEO Sashidhar Jagdishan even as he emphasised that “we are not apologetic about the decision to go for the merger.”
Answering shareholders’ questions at the Bank’s 30th AGM, he observed that when the merger (of HDFC with HDFC Bank) was announced on April 4, 2022, there was a rationale/thought process as to why it was extremely important for the combined entity in the landscape they were in.
“This is an inflexion point for India to shine over the next several decades and we believe, the merger, especially with the home loan product coming in to enhance our product offering, is going to take us to the next level in terms of customer engagement and also in terms of penetrating financial services to a large part of the citizens of the country.
“Even though the landscape has changed dramatically since April 4, 2022 (when the merger decision was taken), we are not apologetic about the decision to go for a merger,” Sashidhar said.
He noted that when the merger was announced a couple of years ago, the environment then was extremely benign.
“So, obviously the roadmap or expectation of a certain growth rate was factored in. From an extremely benign liquidity environment, we have now moved to a different kind of environment…The liquidity environment is very tight. Over the last couple of years, credit growth in the system was much higher and so there is expectation of a change in the business cycle, not just in India but globally,” Sashidhar said.
He emphasised that over the last 12 months, HDFC Bank has maintained stability in the key financial metrics, with the underlying stability of the two institutions (HDFC and HDFC Bank) being intact.
“We are an institution which is going to be a long play in the Indian economy. So, we have a medium to long-term strategy….The benefits of the merger are going to accrue over the next 5, 10, 15, 20 years….we are on right path.
“As we are building this new organisation and navigating through this new macro environment, we are well aware that a period of adjustment is happening. That adjustment will take a little bit of time before we can sort of break out as we have done in the past,” said the chief of India’s largest private sector bank
HDFC Bank will grow its advances a little slower than the deposit growth in a bid to to bring down the credit to deposit (CD) ratio to pre-merger levels.
Pre-merger, the CD ratio of India’s largest private sector bank was at 80-85 per cent. HDFC merged with HDFC Bank with effect from July 1, 2023. Post-merger, HDFC Bank’s CD ratio was at 105 per cent as at March-end 2024.
“It is our endeavour to bring down the credit to deposit ratio to pre-merger levels and our focus would be to maintain adequate liquidity buffers, repayment of erstwhile HDFC borrowings as and when they mature, including weighing any prepayment opportunities that may arise, and pursuing profitable sources of lending,” said Sashidhar said in a letter to shareholders last month.