HDFC Bank CEO flags funding risk post merger, says net interest margins may get hit

After the successful $40 billion amalgamation with its parent, private lender HDFC Bank chief Sashidhar Jagdishan on Friday flagged funding as a risk, reported PTI.

Jagdishan flagged his concern to the shareholders at its maiden annual general meeting after the merger came into effect on 1 July. He said, "As you know, the risks of the merger are the funding part of it."

The HDFC has not been fully successful in getting all the forbearance it had sought from the Reserve Bank of India (RBI) on the liabilities front as of now.

The apex bank regulating body had refused to provide any exemptions on Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements on the deposits that come from HDFC, which was a deposit-taking entity.

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Apart from this, concerning the RBI's move to put an incremental CRR of 10 percent on deposit accretions in all the scheduled commercial banks after May, RBI has raised questions.

However, the HDFC chief exuded confidence that the bank will be able to surmount the funding challenge and pointed the board, senior leadership, and staff are cognizant of the work at hand.

As per Jagdishan, the merger, and the timing, made sense because of the advantages that it offers and added that the staff is "excited" to take on the funding challenge.

"I think time will tell but we're extremely confident in the way that we have grown over the last 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.

Also, HDFC had sought shareholders' approval to raise ₹50,000 crore from bond issuances going ahead. Jagdishan said the bank will be active on this front as part of its liabilities management.

The latest merger with HDFC may impact the Net Interest Margins (NIMs) of the bank, due to the higher proportion of the low-interest yielding housing loans which get added. Jagdishan said that the same will be visible from the results for the September quarter itself.

He added that housing loans also present advantages in terms of better repayment ratios which lower the credit costs on such advances.

The private lender is confident of getting the profitability or the returns back to historical levels in up to 18 months, considering it had always reported NIMs between the 4-4.4 percent range. "It's been always a philosophy that we will not compromise growth for profitability," Jagdish said.

On Friday, the HDFC scrip closed 1.05 percent down at ₹1,619.05 a piece on the BSE.

With agency inputs.