Post merger, HDFC Bank CEO flags funding risk; says net interest margins to be hit
HDFC Bank's CEO, Sashidhar Jagdishan, expressed caution regarding funding challenges for the bank. Speaking to shareholders during the inaugural annual general meeting after the merger's implementation on July 1, Jagdishan acknowledged that the merger's primary risk pertains to funding.
Following the successful USD 40 billion merger with its parent company, HDFC Bank's CEO, Sashidhar Jagdishan, expressed caution regarding funding challenges for the bank. Speaking to shareholders during the inaugural annual general meeting after the merger's implementation on July 1, Jagdishan acknowledged that the merger's primary risk pertains to funding.
The bank has encountered difficulties in securing all the forbearance it had requested from the Reserve Bank of India (RBI) in relation to its liabilities. The RBI declined exemptions on Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements for deposits originating from HDFC, which was a deposit-taking entity. Furthermore, concerns have arisen about the potential impact on HDFC Bank due to the RBI's decision to impose an incremental CRR of 10 percent on deposit accretions in scheduled commercial banks after May.
Jagdishan conveyed confidence in the bank's ability to address the funding challenge, noting that the board, senior leadership, and staff are fully aware of the task at hand. He emphasized that the merger's timing was strategic, leveraging the advantages it offers, and highlighted the team's enthusiasm for tackling the funding issue.
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Jagdishan stated, "While time will be the ultimate judge, we have great confidence in our growth trajectory over the past decade. There's every reason to believe that we can overcome these challenges and continue to pursue growth opportunities in the years ahead."
To manage its liabilities, the bank has sought shareholders' approval to raise up to Rs 50,000 crore through bond issuances. Jagdishan affirmed the bank's commitment to this strategy.
The merger with HDFC is expected to impact the bank's Net Interest Margins (NIMs) due to the increased proportion of low-interest yielding housing loans. Jagdishan clarified that this impact would be evident in the results for the September quarter. However, he highlighted the positive aspect of improved repayment ratios and reduced credit costs associated with housing loans.
Despite the projected impact on NIMs, the bank remains confident in its ability to restore profitability and historical returns within the next 18 months. Jagdishan emphasized that the bank's philosophy of not compromising growth for profitability remains unchanged.
Addressing concerns about staff behavior reported on social media, including incidents of senior employees behaving aggressively towards subordinates, Jagdishan reiterated the bank's commitment to employee satisfaction and a positive organizational culture. He pledged to publish employee satisfaction survey results in the annual report starting next year.
Approximately 7 percent of the bank's total expenditures are allocated to technology, according to Jagdishan. However, he acknowledged that additional security features could potentially result in minor inconveniences.
Meanwhile, HDFC Bank's Non-Executive Chairman, Atanu Chakraborty, disclosed that former HDFC Chairman Deepak Parekh cannot join the bank's board due to an RBI policy barring directors over the age of 75. Key executives Renu Karnad and Keki Mistry have become members of the bank's board.
Jagdishan revealed that a request has been submitted to the RBI for approval to induct former HDFC Chief Financial Officer V Srinivasa Ranjan onto the bank's board. On Friday, the bank's stock closed 1.05 percent lower at Rs 1,619.05 per share on the BSE, compared to a 0.56 percent decline in the benchmark index.