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Balancing growth and quality
Presenting at IF, Mr. Aditya Puri (MD, HDFC Bank) and Mr. P Sukthankar
(ED) highlighted that credit growth is showing mixed signs- while some
segments are seeing moderation (capex and auto), demand for mortgage
and working capital is holding-up well. RBI may raise policy rates by
25bps and in a high interest rate scenario CASA growth is a challenge
however, bank sees limited risk to margins. Asset quality is holding-up
well and bank’s exposure to infrastructure sectors is low and selective.
Mixed trends in credit demand
The management highlighted that the credit demand trends have been mixed
from different sectors. Sectors where demand has held up are a) working
capital- partly due to high inflation, b) smaller capex (like brown-field), and c)
mortgages (especially non-metros). Segments impacted most from a credit
demand perspective are a) large brown-field capex, b) green-field capex and
c) infra projects. On the retail side, demand for auto and CV/ CE loans has
softened. Sectors where credit demand has picked-up are mostly risky
sectors such as unsecured loans and SME; most banks are risk averse and
not willing to lend to these sectors, but HDFC Bank believes that there are
profitable lending opportunities in these segments. Management expects
sector credit growth to be 17-18% and expects deposit growth for the sector
to match credit growth.
Stable margins, but moderate fee growth
Management expects that the RBI to raise the policy rates by another 25bps
in the next monetary policy review in order to contain inflationary pressures.
CASA growth is becoming a challenge as high interest rates are (1) inducing
conversion of savings deposits into term deposits and (2) forcing corporate to
hold lower current account balances. HDFC Bank expects to maintain margins
near current levels supported by high CASA ratio and balanced ALM. Slower
credit offtake tends to impact fee growth also, but HDFC Bank is better
positioned due to higher share of transaction banking linked fees.
No significant stress on asset quality
Management highlighted that recent trends do not indicate potential of sharp
rise in stressed assets- hike in interest rates and slowdown in economy have
not yet impacted bank’s asset quality. While there are pockets of risk in the
infrastructure sector, HDFC Bank has a lower exposure. Bank also carries high
coverage levels against NPLs (83% in Jun-11) and has created additional
contingent provisions which will help to keep credit costs low even as fresh
slippages rise from the current levels that are near cyclical lows.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Balancing growth and quality
Presenting at IF, Mr. Aditya Puri (MD, HDFC Bank) and Mr. P Sukthankar
(ED) highlighted that credit growth is showing mixed signs- while some
segments are seeing moderation (capex and auto), demand for mortgage
and working capital is holding-up well. RBI may raise policy rates by
25bps and in a high interest rate scenario CASA growth is a challenge
however, bank sees limited risk to margins. Asset quality is holding-up
well and bank’s exposure to infrastructure sectors is low and selective.
Mixed trends in credit demand
The management highlighted that the credit demand trends have been mixed
from different sectors. Sectors where demand has held up are a) working
capital- partly due to high inflation, b) smaller capex (like brown-field), and c)
mortgages (especially non-metros). Segments impacted most from a credit
demand perspective are a) large brown-field capex, b) green-field capex and
c) infra projects. On the retail side, demand for auto and CV/ CE loans has
softened. Sectors where credit demand has picked-up are mostly risky
sectors such as unsecured loans and SME; most banks are risk averse and
not willing to lend to these sectors, but HDFC Bank believes that there are
profitable lending opportunities in these segments. Management expects
sector credit growth to be 17-18% and expects deposit growth for the sector
to match credit growth.
Stable margins, but moderate fee growth
Management expects that the RBI to raise the policy rates by another 25bps
in the next monetary policy review in order to contain inflationary pressures.
CASA growth is becoming a challenge as high interest rates are (1) inducing
conversion of savings deposits into term deposits and (2) forcing corporate to
hold lower current account balances. HDFC Bank expects to maintain margins
near current levels supported by high CASA ratio and balanced ALM. Slower
credit offtake tends to impact fee growth also, but HDFC Bank is better
positioned due to higher share of transaction banking linked fees.
No significant stress on asset quality
Management highlighted that recent trends do not indicate potential of sharp
rise in stressed assets- hike in interest rates and slowdown in economy have
not yet impacted bank’s asset quality. While there are pockets of risk in the
infrastructure sector, HDFC Bank has a lower exposure. Bank also carries high
coverage levels against NPLs (83% in Jun-11) and has created additional
contingent provisions which will help to keep credit costs low even as fresh
slippages rise from the current levels that are near cyclical lows.
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