The merger of Housing Development Finance Corporation (HDFC) into HDFC Bank presents a major alternative for the financial institution to scale up and can assist it double its stability sheet each 5 years, HDFC Bank MD and CEO Sashidhar Jagdishan mentioned.
Addressing sector analysts at an interplay on Tuesday, Jagdishan sought to allay the investor group’s considerations concerning the proposed merger. “Growth is not going to be an issue at all. It’s going to be pouring out of your ears,” Jagdishan mentioned. The solely limiting issue will probably be liabilities and the financial institution has a method for that, he mentioned.
The financial institution expects mortgage penetration to drive its development after the merger. Despite being the biggest personal financial institution in India with a 9.5% market share in deposits, the market share of the lender in dwelling loans stands at beneath 2%. What’s extra, the financial institution discovered that 5% of its 71-million buyer base had taken dwelling loans from different banks.
With the merger taking impact, HDFC Bank expects so as to add 9-10 million mortgage clients each year. It may even deal with inefficiencies inherent within the present association of HDFC Bank sourcing loans for HDFC. Jagdishan mentioned as issues stand, the turnaround time for mortgages sourced by the financial institution ranges from eight to 10 days, and there have been requests to crunch it to 6 to seven days.
Mortgages will assist the financial institution increase its cross-selling alternatives when it comes to client sturdy financing, unsecured lending and liabilities. With the merger, the share of unsecured loans within the ebook will fall to 20-25%, providing room for additional development.
The financial institution expects that on the efficient date of the merger, it’s going to have $6-7 billion price of earnings accruing on an annual foundation. With a development fee of 18-22% over the five-year interval thereafter, earnings would increase to $14-15 billion.
Jagdishan mentioned the financial institution was the one to provoke talks for a merger in October-November 2021 and HDFC got here again to it in February. The nitty-gritties had been thrashed out over the subsequent two months. “Contrary to the belief, we batted on the front foot. Normally for 25-year history, we were always on the back foot, saying that we are not too keen or not too sure about it. But this time around, we went on the front foot, saying we want this merger,” Jagdishan mentioned.
HDFC Bank is not going to want to boost incremental liabilities to satisfy regulatory necessities on statutory liquidity ratio as a result of it’s sitting on an extra, Jagdishan mentioned. The capability to satisfy precedence sector necessities can also be significantly better now.
Half of what the financial institution might want to meet its precedence sector necessities will probably be raised by way of precedence sector lending certificates. “The balance 50% of Rs 80,000-90,000 crore is something that we have 33 months from today to generate liabilities in any form and put it in priority sector assets or even in rural infrastructure development bonds,” Jagdishan mentioned.
Analysts who attended the convention proceed to have questions on HDFC Bank’s capability to boost incremental liabilities. Emkay Global Financial Services mentioned in a report the extra PSL requirement of Rs 2.1 trillion in FY25 stays a key regulatory drag. “Overall, factoring in the regulatory requirements and assuming 20% of high-cost HDFC borrowing are replaced, our workings suggest that the bank will have to mobilise deposits to the tune of Rs 5.5 trillion over FY24-25, which need to be met through a combination of growing vintage of branches and accelerated growth via some rate tinkering,” the report mentioned.
Others anticipate the financial institution’s inventory efficiency to enhance regularly. HDFC Bank stays amongst most well-liked picks for Motilal Oswal Financial Services. “We expect the stock to recover gradually as revenue and margin revive over FY23, while further clarity emerges on several aspects related to its merger with HDFC,” the brokerage mentioned on Wednesday.
Source: www.financialexpress.com”