New Delhi: HDFC bank Its Managing Director and CEO Shashidhar Jagadeesan said it is proposed to double its network of branches by adding 1,500 to 2,000 branches annually over the next three to five years, which would be like adding a new HDFC Bank every five years.
Outlining the rationale for the merger of HDFC with HDFC Bank in his letter to shareholders in the Annual Report 2021-22, Jagadeesan said: “The proposed merger adds an entirely different dimension to the future. We believe that the runway will be very Big, and we can potentially add one HDFC Bank every five years.”
He further said that the bank proposes to almost double its branch network in the next three to five years by opening 1,500 to 2,000 branches every year. At present it has more than 6,000 branches across India.
“The density of branches for the population of this country is much lower than in OECD countries. This is where our branch banking strategy comes in. Today, we have over 6,000 branches across India, and we look to almost double our network in the next few years. We are planning for three to five years by opening 1,500 to 2,000 branches every year,” he said.
In early April this year, Housing Development Finance Corporation (HDFC) and its subsidiary HDFC Bank had announced a transformative merger, which is expected to be completed in around 15 to 18 months.
Naming the merger as ‘Power of One’, Jagadeesan said the bank is looking forward to the talent, in-depth product knowledge and expertise, unprecedented set of processes and system that the lender will add to the existing ones.
Jagadeesan said HDFC Bank cannot afford to miss this opportunity, adding that home loans are sentimental products and bring with them many instant benefits for the bank.
“Today the home buying environment has changed. RERA has ensured greater transparency in the process. The correction in prices in the property market has seen a reduction in inventory. Also, rising income means that home loan EMIs vary as a percentage of an individual. Income has come down in the form of,” the official said.
He said that with access to telecommunications, internet and television services, the desire to own better homes has increased across the country.
“All of this means that housing is going to be a huge growth opportunity and one of the major drivers of India’s GDP over the next decade.”
Putting forth the figures, Jagadeesan said that only 2 per cent of its customers take their home loans from it, while 5 per cent do so from other institutions. “The latter is equivalent to the size of our retail book. Home loan customers generally hold 5 to 7 times the deposits as compared to other retail customers. And about 70 per cent of HDFC Ltd customers do not maintain a bank with us.”
All these give HDFC Bank an idea about the size of the opportunity, he said, adding that the long tenure nature of the home loan provides flexibility to the balance sheet. The bank is one of the largest consumer durable financiers in the country.
“We can easily combine this with a home loan, as with every home loan, there is a tendency for the customer to pick up new consumer durables. It is this kind of bundle that will boost margins. With the benefit of lower cost of funds, With and with the phenomenal distribution muscle we have built, it is imperative that we take advantage of this opportunity.”
Arguing for the timing of the merger, he said there are other favorable factors as well such as reducing regulatory arbitrage between banks and NBFCs in the last few years, reducing reserve requirements from 26 per cent to about 22 per cent.
“Both the institutions are well capitalized and have surplus liquidity and a strong portfolio of investments in government securities. The increase in priority sector lending due to the merger is what we need to do, now with our own increased focus on MSMEs. It is possible with the affordable housing loan that we can and the well-developed PSL certificate market.
“This means that there may not be a need to raise further funds to meet reserve requirements on the day of the merger. Adding the home mortgage portfolio to our balance sheet makes it more diversified and robust.”
In addition, the bank’s enhanced capital position post-merger also means that the lender can take larger exposure to major corporates and build the country’s infrastructure, Jagadeesan said.
He said that HDFC Bank already has a huge opportunity with less penetration of banking services in the country. “The proposed merger adds an entirely different dimension to the future.”
On capital raising plans, the lender said it proposes to raise an amount of over Rs 50,000 crore by issuing long-term bonds on private placement basis.
It will seek shareholders’ approval for the fundraising plan at the upcoming Annual General Meeting to be held on July 16, 2022.
In the financial year ended March 2022, HDFC Bank reported a growth of nearly 19 per cent in net profit of Rs 36,961 crore. Its balance sheet grew 18.4 per cent to Rs 20,68,535 crore.
On the asset quality front, the bank’s gross non-performing assets stood at 1.17 per cent of the gross advances as on March 31, 2022.
Outlining the rationale for the merger of HDFC with HDFC Bank in his letter to shareholders in the Annual Report 2021-22, Jagadeesan said: “The proposed merger adds an entirely different dimension to the future. We believe that the runway will be very Big, and we can potentially add one HDFC Bank every five years.”
He further said that the bank proposes to almost double its branch network in the next three to five years by opening 1,500 to 2,000 branches every year. At present it has more than 6,000 branches across India.
“The density of branches for the population of this country is much lower than in OECD countries. This is where our branch banking strategy comes in. Today, we have over 6,000 branches across India, and we look to almost double our network in the next few years. We are planning for three to five years by opening 1,500 to 2,000 branches every year,” he said.
In early April this year, Housing Development Finance Corporation (HDFC) and its subsidiary HDFC Bank had announced a transformative merger, which is expected to be completed in around 15 to 18 months.
Naming the merger as ‘Power of One’, Jagadeesan said the bank is looking forward to the talent, in-depth product knowledge and expertise, unprecedented set of processes and system that the lender will add to the existing ones.
Jagadeesan said HDFC Bank cannot afford to miss this opportunity, adding that home loans are sentimental products and bring with them many instant benefits for the bank.
“Today the home buying environment has changed. RERA has ensured greater transparency in the process. The correction in prices in the property market has seen a reduction in inventory. Also, rising income means that home loan EMIs vary as a percentage of an individual. Income has come down in the form of,” the official said.
He said that with access to telecommunications, internet and television services, the desire to own better homes has increased across the country.
“All of this means that housing is going to be a huge growth opportunity and one of the major drivers of India’s GDP over the next decade.”
Putting forth the figures, Jagadeesan said that only 2 per cent of its customers take their home loans from it, while 5 per cent do so from other institutions. “The latter is equivalent to the size of our retail book. Home loan customers generally hold 5 to 7 times the deposits as compared to other retail customers. And about 70 per cent of HDFC Ltd customers do not maintain a bank with us.”
All these give HDFC Bank an idea about the size of the opportunity, he said, adding that the long tenure nature of the home loan provides flexibility to the balance sheet. The bank is one of the largest consumer durable financiers in the country.
“We can easily combine this with a home loan, as with every home loan, there is a tendency for the customer to pick up new consumer durables. It is this kind of bundle that will boost margins. With the benefit of lower cost of funds, With and with the phenomenal distribution muscle we have built, it is imperative that we take advantage of this opportunity.”
Arguing for the timing of the merger, he said there are other favorable factors as well such as reducing regulatory arbitrage between banks and NBFCs in the last few years, reducing reserve requirements from 26 per cent to about 22 per cent.
“Both the institutions are well capitalized and have surplus liquidity and a strong portfolio of investments in government securities. The increase in priority sector lending due to the merger is what we need to do, now with our own increased focus on MSMEs. It is possible with the affordable housing loan that we can and the well-developed PSL certificate market.
“This means that there may not be a need to raise further funds to meet reserve requirements on the day of the merger. Adding the home mortgage portfolio to our balance sheet makes it more diversified and robust.”
In addition, the bank’s enhanced capital position post-merger also means that the lender can take larger exposure to major corporates and build the country’s infrastructure, Jagadeesan said.
He said that HDFC Bank already has a huge opportunity with less penetration of banking services in the country. “The proposed merger adds an entirely different dimension to the future.”
On capital raising plans, the lender said it proposes to raise an amount of over Rs 50,000 crore by issuing long-term bonds on private placement basis.
It will seek shareholders’ approval for the fundraising plan at the upcoming Annual General Meeting to be held on July 16, 2022.
In the financial year ended March 2022, HDFC Bank reported a growth of nearly 19 per cent in net profit of Rs 36,961 crore. Its balance sheet grew 18.4 per cent to Rs 20,68,535 crore.
On the asset quality front, the bank’s gross non-performing assets stood at 1.17 per cent of the gross advances as on March 31, 2022.