When Aditya Puri joined HDFC Bank nearly 25 years ago, the bank's balance sheet was as empty as the table in his corner office today. Puri runs India's largest private sector bank without a pile of papers or digital devices on his table. He also does not use a mobile, a fact that in no way hampers his ability to imagine a fully-digital identity for the bank or talk non-stop about its tech-intensive omnichannel strategy.
In the last 25 years, the table has remained empty, but the balance sheet - with a size of Rs 11.68 lakh crore - is bulging. HDFC Bank is the most valued Indian lender in the stock market with a market capitalisation of Rs 5.67 lakh crore - State Bank of India and private majors Kotak Mahindra Bank and ICICI Bank are not even half its value. In spite of its size and wide portfolio, it posted a stellar 20.2 per cent rise in profit to Rs 17,487 crore in 2017/18. The HDFC group, which includes HDFC and HDFC Bank, last year briefly overtook the 150-year-old Tata Group in aggregate market capitalisation, mainly because of HDFC Bank's performance.
"It is a journey where we have clearly defined our objectives. We are the market leader in most of the areas we operate. We are at the forefront of digitisation and change in the financial services industry," says Puri. The bank's services now cover one lakh villages. It has also been at the cutting edge of innovation. "We are one of the few banks which offer all our products in semi-urban and rural markets. We are using the latest technology and substituting the money lender. We service people right from microfinance (borrower) to Reliance," says Puri. The bank's 53 per cent branches are in rural and semi-urban areas.
The bank had deposits of Rs 8.53 lakh crore as on December 2018, an increase of 22 per cent from a year ago. Current account savings account, or CASA, deposits grew 13 per cent with savings deposits at Rs 2.35 lakh crore and current deposits at Rs 1.12 lakh crore. The share of CASA in total deposits is a healthy 40.7 per cent. The focus on deposits helped the bank maintain a healthy liquidity ratio of 122 per cent during the period. Domestic advances, including retail & wholesale, grew 24.1 per cent. Total advances were Rs 7.8 lakh crore. For nine months ended December, the bank earned a total income of Rs 85,393.5 crore, up 22.14 per cent from the year-ago period. The profit rose 19.7 per cent to Rs 15,193 crore. The capital adequacy ratio was 17.3 per cent. The bank had 5,000 branches around mid-February.
Engine Of Growth
A calibrated system takes care of HDFC Bank's growth. Puri says he cannot sanction a loan to anyone even if he wants. The system takes care of the procedures, he says, adding that the bank is conservative and takes time to change strategy. "If we make a mistake, it will be small, because we don't add scale straight away. We test everything. We are conservative as money has been invested in us on trust," he says. For instance, the bank has been experimenting with opening more semi-urban and rural branches for the last eight years. It has decided to go for scale only recently. "Before you start walking, you can't run. If you know what you are doing, do it in a thorough manner and make sure you know every aspect of it. Ambitions will take you to unchartered areas," he says.
For instance, the bank has been cautious in corporate lending. "Our target is not one deal or transaction. We work on a relationship-driven model and look for long-term engagement with companies starting from salary management to working capital lending to project financing," says Kaizad Bharucha, Executive Director of the bank.
The conservative approach helped the bank thrive when every other lender was being hit by defaults and NPAs. "If you call me conservative for not giving loans to people who don't repay, I am extremely conservative. We have a strong institutionalised system for sanctioning loans," says Puri. The bank's NPAs are the lowest in the industry at 0.4 per cent.
Lock, Stock & Barrel
HDFC Bank's aim is to become the market leader in all the businesses it is in. "We are transforming our banking system into a world of financial experience. We facilitate shopping of cheapest TV, mobile, grocery, travel ticket, consumer durables, shares, mutual funds, insurance. When customers think money, HDFC Bank should come to their mind," says Puri. His intention is to provide services of Amazon, Google, JP Morgan, MakeMyTrip, BookMyShow and PayTM, all on one platform.
Rahul Shukla, Group Head of Corporate Banking & Business Banking, says the bank focuses on offering varied services. "We prefer to cross-sell." The bank has 23,000 people working in semi-urban and rural areas. "This is virgin territory. It will grow faster than the urban," says Smita Bhagat, Head, Government and e-commerce, HDFC Bank.
HDFC Bank has signed an agreement for buying a 9.11 per cent stake in CSC E-Governance Services India for Rs 14.62 crore. CSC has 3.2 lakh centres across India that the bank plans to use for selling their products. The bank already offers product services in 11 Indian languages on the mobile as part of its financial inclusion strategy.
Around 30 per cent retail loans are unsecured. Does this pose a risk? Arvind Kapil, Group Head, Unsecured Loans, Home and Mortgage Loans, says unsecured loan is becoming the new working capital loan for the salaried class. "The risk in unsecured loans has fallen dramatically. We have processes and risk management mechanisms for correct assessment of the customer."
The Digital Journey
With new technologies presenting a host of options to customers, which ones will the bank depend upon for growth? "I strongly believe that the various payment options such as POS machines, mPOS, Bharat QR, UPI are the railroads to drive the digital ecosystem. In this day and age of hyperpersonalisation, we see ourselves as a lifestyle bank relevant to the needs and desires of customers," says Parag Rao, Country Head - Card Payment Products, Merchant Acquiring Services and Marketing. "So, if mobile phone is the device of choice for people, our services and offerings are made available to them in just a few clicks through our SmartHub app. Our DigiPOS enables a customer to pay using different payment platforms on one machine at shops and commercial establishments with nil investment by the merchant. Similarly, we offer virtual credit cards issued within minutes keeping in mind the rising e-commerce transactions. All offerings are backed by use of analytics to understand our customers better," he says.
The 69-year-old Puri says a succession plan is already in place. "For every key role, I have two people," he says. Recently, the bank received a jolt when Deputy MD Paresh Sukthankar, seen as Puri's successor, left abruptly. The process for selection will start soon as the retirement age for CEO is 70 years. Puri says an outsider will also be considered for his role. Also, it won't be a surprise if Puri continues on top!