Asset Quality: Marginally cautious on CVs; sanguine on others: HDFCB was
sanguine on all parts of their retail book except some pockets of pain in MHCV
segments. In the mid sized fleet category (~50 fleet size), HDFCB has seen
cheque bounce rates going up but again they believe that delinquency levels is
just normalising from very low credit costs levels. In spite of some inch-up in
delinquencies expected in CVs, HDFCB continues to maintain it’s ~80-100bps of
credit cost guidance which has proven to be conservative over last 6 qtrs.
Maintain margin guidance: HDFCB maintained their margin guidance of 4.1-
4.3% range in spite of some pricing competition in Cars/CVs as they believe that
falling rate environment will be positive for their fixed rate lending book and
hence expect to maintain margin in a tight range.
Cost efficiency improvement‐ Next profitability driver: As credit costs are at
cyclical lows, HDFCB believes that the next round of ROA improvement will be
led by cost efficiency improvement with 50-100bps yrly improvement in costincome
to be expected over the next 2-3yrs. HDFCB is not the most aggressive in
terms of employee compensation (operating currently at the 2nd quartile) and
believes the new branch strain will get lower over the next 2-3 yrs and will be a
key factor in improving cost efficiency.
PSL targets ‐Opportunity rather than burden‐ HDFCB well positioned: Of all
banks in our conference, HDFCB was the only one which sees the PSL guidelines
as an opportunity. Management said that they are present in ~400 districts of
the 650 districts and they can tap ~200 more districts profitably. Also, they have
added PSL targets to branch staff KRAs over last 2-3 yrs and have seen strong
branch driven traction on PSL lending.
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