Mumbai: HDFC Bank Ltd’s managing director Aditya Puri said even if economic growth slows to less than 8% in the current fiscal, there is no concern regarding the quality of the lender’s assets. In an interview, he said the bank will continue to grow its loans, deposits and profit faster than the industry average. Edited excerpts:

With clinical precision, quarter after quarter, HDFC Bank has been posting 27-32% growth in net profit and net interest income. Its net interest margin (NIM) continues to be high and non-performing assets (NPAs) low. How do you manage this?

Defining trend: Puri says the bank will continue to grow its loans, deposits and profit faster than the industry average. Abhijit Bhatlekar/Mint

Margin is a function of the products and the level of delinquency depends on the credit risk that you take. We are not doing banking that is considered to be extremely intelligent and results in a disaster.

Does intelligent banking lead to disaster?

Super intelligent banks develop products that only they can understand and history says it led to a problem.

Have you seen such banks in India?

I would reserve my comments.

Technically you are a foreign company because your foreign ownership is more than 76%. Does it have an impact on your day-to-day operations?

We are not a foreign company, even technically.

But the government norms say that.

I am not going to comment on the government norms. In my view, we are not a foreign company because foreign voting rights in our company are less than 50%. The ADRs (American depository receipts) that we have issued do not carry voting rights. I am very clear that the majority ownership as well as the control of this bank is Indian. Foreign capital is welcome if that helps our growth.

But doesn’t it affect your downstream investments?

No. You need (government) approval (for such investments). I presume that everything will be streamlined and we will be getting quick approvals in the future.

For past few years you have been ramping up retail loan book. Now retail and corporate books are almost equal. Is there a strategic shift in your business?

India, in our view, is a consumption story. If you see the composition of our GDP (gross domestic product), 57% is consumption and if you are a bank you cannot be outside that portion of GDP. We needed to be in retail banking. You also have the government as a major component and so we moved into the government business.

We also figured that India was growing, it was under-banked and if you have the right product across the entire spectrum of the GDP, then there is no way that you would not grow well without taking undue risks. As 50% of the population resides in semi-urban and rural areas, we should have an appropriate distribution platform and product offerings to that part of the country.

Do you see retail loan portfolio rising?

I don’t think so. We don’t have targets for either corporate or retail loans… It will depend on the prospects for the business. As of today, we are largely in the working capital cycle for corporates and, with inflation, demand for working capital goes up. So, we see a healthy growth in our corporate portfolio. With inflation, salaries also go up; so we see a healthy demand in our retail portfolio.

With inflation, investments to some extent suffers. Fortunately, we are not very big in that area.

You are the largest credit card issuer in India.


Credit card loans are unsecured. You also offer unsecured personal loans. Aren’t you running a risk?

Of course, we are running a risk, but you have to be clear on what type of risk you are running and whether the risk is appropriately priced so that at the end of the day after operating costs and the expected defaults, you get the appropriate return on the product.

We have been in personal loans for 10 years and have a fantastic book which is not showing any strain. You must understand that if you have to be a major player in retail, it cannot be only on secured products.

Are you making money on retail loans?

We are definitely making money. We don’t do anything where we don’t make money.

In credit card business?

We are making money... There is a wrong impression in the world at large that credit card is extremely profitable. Most banks in India in the credit cards business at this point are either making marginal losses or may be breaking even. We are one of the few that are making money. There is an impression that the banks are charging usury rates… It’s not correct.

What will be your NPA in the credit card portfolio?

The market NPAs are upward of 15%. We are just about in double digits.

Last year your additional accretion to NPAs was 1.1%, the lowest in the industry. With economy slowing, do you see any strain in your portfolio?

In a growing economy, I don’t understand why people are so worried about bad assets. If you make a bad decision, you will get bad assets. Bad debts come when you have a tremendous fall in growth rate that is unexpected. Half per cent reduction in growth is not anything to be so worried about. From 8.5% to 8% or 7.75% in my view is no big deal.

What about loan growth? Do you see any kind of deceleration?

Proportionately, loan growth in the system is a function of GDP growth. Normally loans in India grow at about two-and-half times the real GDP. So, if the economy grows at 8%, system’s loans will grow at 20% and we will grow a couple of percentage points faster than the industry.

So you are targeting about 22% credit growth.

My bank is quoted on the NYSE—I can’t say whether it is 22% or 25%. Look at the past. We will grow faster than the industry.

That is both for loan and deposits?

Yes, and profit.

You are offering 6-6.5% interest on short-term deposits. What provoked you to offer such a high interest rate?

It’s a function of the market. In the rising rate environment, most people don’t put (money in) short term. They like to go long term and that makes sense because what goes up must come down. I can’t predict exact timing of the cycle, but I can assure you that interest rates are going up, but they will come down. So, the prudent thing to do is to pay a little more and in line with the market.

In line with the market, you must be charging your borrowers, too.

Considering that we are a commercial organization, I would say yes. We never charge usury rates.

Your NIM at 4.2% is very high. Does any international bank enjoy such a huge spread?

Wells Fargo has a very high NIM. The asset price is decided by the market and my margin is the function of my efficiency in terms of operations.

All the good banks in the world—whether it is Wells Fargo or Hang Seng Bank—have a margin of about 4% plus.

Also, margins should always be discussed on a risk-adjusted manner. If I am in credit cards, my margin would be 20%, but I will take a delinquency of 10% and 7% is my cost. So margin in itself is not something that should be discussed.

The risk-adjusted margin in India is not high, even by global standards. Just to give you an idea, the average margin in the US is approximately 3.2%. Average margin in India is 2.8%. If the margin is consequent to your efficiency, it is not defined as high margin, it is good cost efficiency.

Your Casa (current and savings account) is about 51% of total deposits. Once the savings deposits are freed, there will definitely be a rate war and prices will go up. How will you manage that?

If you look at experience all over the world, when you deregulate, it’s the lower middle class and the poor that suffer the most. I strongly agree with Dr (Y.V.) Reddy that savings account is the financial service and not necessarily something that should be used in terms of intermediation. If you want the savings account to be used as intermediation, introduce a money market account. As far as the savings account is concerned, I am only 3.5-4% of the system and I am best positioned to offer multiple products in any kind of rate environment.

Do you see a rate war?

Rate war or no rate war, it will be beneficial for HDFC Bank.


I have the best product to offer and the largest distribution.

Some small banks are saying that they would pay X amount, but that’s irrelevant. Those banks pay higher than us even today. Do they have a product? The reach? The capability of bundling and offering a complete product? I can give you a package.

I don’t know why we are making so much of noise about savings bank rate. Let’s take an average balance of savings account at Rs5,000, if one offers 2 percentage points more, it means Rs100 a year. How many people will shift for Rs100 a year?

If you charge Rs10-12 for ATM usage, you will spend the Rs100 in two months.

So, you will throw those consumers out who keep very little money in savings account.

I am saying this is bad for the system and don’t do it. It’s not good for a country where a large proportion of population is in the middle and the lower middle (income group).

Investment bankers say they have a mandate from HDFC Bank to look around, but you are not willing to pay. You picked up Times Bank in 1990s and later you picked up four banks in one bank—Centurion bank of Punjab. Do you still have appetite?

Appetite is always linked to the price. Then, even at a good price you cannot buy a wrong asset. So if we get a good price for a strategic fit—that means either add to my product offering or my geographic distribution and not create incremental problems for us and be accretive to the shareholder within a reasonable period of time—we will buy. We are always in the market. Are we looking at anything today? No, if something comes up, of course, we will look, but there is nothing on the table now.

In 2013, when your current term ends you’ll be 62. Is there any succession plan?

Firstly, are you asking me whether I am ready to retire at 62? My answer is, no. If I am not going to retire at 62, I presume there is an extension there. Then succession planning is not that imminent as it should be. That apart, in HDFC Bank we run a very independent shop; our second line is extremely strong. A lot of the CEOs of foreign and private banks have gone from here, but we always fill the vacancy internally. There is enough bench strength...

You were the third employee of HDFC Bank. Your office at the Kamla Mills Compound in Mumbai was a table and you said rats chewed up the wires of the computer. What’s your advice to the new banks that may come soon?

In India the demand for financial services will exceed supply for the next 10 years.

You are the role model for many bankers. What’s the Puri magic?

It’s nothing. The Puri magic is work hard. Keep your life simple and have a very good team working for you because if you try to do all the work then you are going to be working very hard.

So, leave office at 5.30?

I never leave office unless my desk is clean. I don’t have a pending file; I don’t have a mobile. Honestly I would say it’s hard work. You develop people so that you don’t have to do all the work.

This is an edited transcript of an interview that was first telecast on Bloomberg UTV on Thursday.