HDFC Bank MD Foresees Bright Future Post Adjustment Phase

HDFC Bank's CEO and managing director, Sashidhar Jagdishan, addressed shareholders on Friday, highlighting the bank's current period of adjustment. He indicated that this phase might slow down credit growth but expressed confidence in overcoming these challenges. Jagdishan mentioned that the adjustment is influenced by the macro environment and the recent merger.

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The bank's credit-deposit (CD) ratio stands at 104%, the highest among peers due to the merger with HDFC Ltd. in July 2023. This high ratio is partly because of the lower share of deposits post-merger. Jagdishan emphasised that it is crucial for deposit growth to outpace credit growth, even if it means temporarily slowing down credit growth or reducing the CD ratio.

Impact of Merger

Jagdishan acknowledged that the bank inherited specific financial metrics on July 1, 2023, when the merger was completed. He noted that high inflation and geopolitical risks have affected some calculations due to significant changes in the landscape. Despite these challenges, he asserted that the decision to merge was sound, stating, "Liquidity was very benign on April 4, 2022, when the two institutions made the surprise announcement."

The CEO also addressed shareholder concerns about valuation, explaining that the merger's impact would not be immediately visible. He stressed that long-term shareholder value creation is more important than short-term gains. The bank's chairman, Atanu Charaborty, described the merger as one of India's largest and most complex in the financial services sector.

Future Growth Pathways

Charaborty highlighted that the merger has strengthened HDFC Bank's pathways for future growth. Jagdishan added that once a certain level is reached post-adjustment, the bank can benefit from an upward cycle. He said, "...even if it means for a period of time we have to slow down the credit growth or bring down the credit deposit ratio, it is in our interest to do it as quickly as possible because post that, post reaching a certain level, I think then we can enjoy the benefits of this cycle moving back upwards."

The CEO also noted a decrease in employee attrition rates, which fell to 27% in FY24 from 34% in FY23. This reduction is seen as a positive development amid ongoing adjustments.

Macroeconomic Challenges

Jagdishan conceded that high inflation and geopolitical risks have impacted some calculations due to dramatic changes in the landscape. He reiterated that despite these challenges, HDFC Bank remains committed to its strategic goals and long-term growth.

In conclusion, HDFC Bank is navigating a period of adjustment influenced by macroeconomic factors and its recent merger with HDFC Ltd. While this may temporarily slow credit growth, both CEO Sashidhar Jagdishan and Chairman Atanu Charaborty remain optimistic about future growth prospects and long-term shareholder value creation.