HDFC Bank chief Jagdishan flags funding risk in first post-merger AGM

HDFC Bank Managing Director and CEO Sashidhar Jagdishan on Friday flagged funding as a risk for the lender, after the completion of the $40-billion amalgamation with Housing Development Finance Corporation (HDFC) on July 1.

“The risks of the merger are the funding part of it,” Jagdishan told shareholders of the largest private sector lender at its first post-merger annual general meeting. HDFC Bank Chairman Atanu Chakraborty, on the other hand, expressed confidence that the private sector lender would benefit from the low cost of funds that a bank traditionally enjoys.

Jagdishan exuded confidence that the bank would be able to surmount the funding challenge, pointing out that the board, senior leadership, and staff are cognizant of the work at hand. “I think time will tell but we’re extremely confident in the way that we have grown over the past 10 years; there is no reason why we will not be able to surmount the challenges and even grab the opportunity to grow similarly over the next many years,” he said.

The bank has sought shareholders’ approval to raise up to Rs. 50,000 crore from bond issuances going ahead, and will be active on this front as part of its liabilities management, Jagdishan said.

The merger with HDFC is all set to impact the net interest margins (NIMs) of the bank because of the higher proportion of the low-interest yielding housing loans, Jagdishan said, adding that the same will be visible from the results for the September quarter itself. Still, housing loans present advantages in terms of better repayment ratios which lower the credit costs on such advances, he said.

The bank, which has always reported NIMs in the 4- 4.4 per cent range, is confident of getting the profitability or the returns back to historical levels in up to 18 months, the CEO further said.

It can be noted that the bank has not been fully successful in getting all the forbearance it had sought from the Reserve Bank of India (RBI) on the liabilities front. The central bank refused to provide any exemption on cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements on the deposits that come from HDFC, which was a deposit-taking entity.

Chakraborty, on the other hand, told shareholders that due to the merger, the bank is set to benefit from the addition of a market-leading home loan product, which can now be directly offered through the bank’s large network of branches, “helping a greater number of people fulfil their aspirations to be homeowners”.

“It will also enable the bank to offer to its wider customer base, a full suite of financial products like life insurance, general insurance, health insurance, and investment products like mutual funds, by leveraging the strength of major entities like, HDFC Ergo, HDFC Life, and HDFC Mutual Fund, which now come into the bank’s fold, as a result of the merger,” Chakraborty said. As a consequence of this merger, the larger balance sheet of the bank would offer to the national economy possibilities of higher credit growth, a larger bouquet of financial products, and higher flows into sectors like affordable housing, agriculture and MSME, he added.