In a significant move for India’s largest private sector lender, HDFC Bank has announced a strategic shift in its growth approach. The bank plans to grow its advances at a slower pace compared to deposits. This decision comes as part of the bank’s efforts to bring its credit to deposit (CD) ratio back to pre-merger levels, following its merger with HDFC Ltd.
Understanding the Merger Impact
Before the merger with HDFC Ltd., which became effective on July 1, 2023, HDFC Bank maintained a CD ratio of around 85 percent. However, post-merger, this ratio surged to 105 percent as of March 31, 2024. This significant increase necessitates a strategic recalibration.
The Path Forward
HDFC Bank’s Managing Director and Chief Executive Officer, Sashidhar Jagdishan, addressed shareholders, outlining the bank’s focused approach. “Our goal is to reduce the CD ratio to pre-merger levels,” Jagdishan stated. “We aim to maintain adequate liquidity buffers and manage the repayment of eHDFC (erstwhile HDFC) borrowings as they mature. This includes evaluating prepayment opportunities and pursuing profitable lending sources.”
During this adjustment period, HDFC Bank will prioritize growing its advances at a pace slightly slower than the growth of its deposits. This cautious strategy ensures that the bank maintains stability while gradually adjusting its financial metrics.
Focus on Granular Deposit Mobilisation
A key element of the bank’s strategy involves leveraging its robust distribution network to mobilize granular deposits. This approach is designed to bolster the bank’s deposit base, providing a stable foundation for future growth.
Profitability Over Growth
Jagdishan emphasized that the bank will steer clear of growth opportunities that do not meet its risk-adjusted profitability thresholds. This disciplined approach underscores the bank’s commitment to sustainable and profitable growth, even as it navigates the complexities of the post-merger landscape.
Conclusion
HDFC Bank’s strategy to grow advances at a slower rate than deposits highlights its commitment to maintaining financial stability and profitability. By focusing on reducing its CD ratio and leveraging its strengths in deposit mobilization, the bank is well-positioned to navigate the post-merger period effectively. This balanced approach aims to ensure long-term growth and resilience in an evolving financial landscape.
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