HDFC Bank sees SME biz growing fastest in 3-5 years

India’s largest private lender HDFC Bank plans to leverage its distribution in non-urban markets and digital strengths to expand its small and medium enterprise (SME) banking platform, its management told analysts.

Brokerage firm Jefferies hosted HDFC Bank chief executive Sashidhar Jagdishan and chief financial officer Srinivasan Vaidyanathan at its recent India Financial Summit.

The management told analysts that recent changes in the management structure were aimed to facilitate a far more focused approach towards execution in this vertical and Rahul Shukla will drive growth in the business. The bank expects the SME business to be the fastest-growing segment over the next three-five years.

“(The) bank is cognizant of the asset quality risks associated with this segment and hence will keep underwriting and collection teams tighter,” it said.

In April, HDFC Bank announced an internal reorganization that would see it form three distinct focus areas, namely, business verticals, delivery channels, and technology. It has named this exercise, Project Future-Ready. As part of the reorganization, Shukla is now responsible to drive the commercial banking and rural vertical.

Jagdishan told analysts that while the bank had taken a cautious view over the past one to one-and-a-half months in the light of covid-19 and its impact on staff and clients, the falling infection rates and vaccination are supporting the opening-up of the bank. The field staff, including sales and collections, are more comfortable taking outbound responsibilities, he said.

“On the client side, the bank is largely comfortable as 85% of retail clients work with corporates rated AA and above, where job losses have been low, SMEs were better prepared than in the past, and larger corporates have better liquidity in their balance sheet,” Jagdishan was quoted as having said.

The Jefferies report added that HDFC Bank’s management said it continues to work with the Reserve Bank of India (RBI) to resolve the digital banking issue and at the same time build more robust platforms.

“While tech outages are a normal business risk for any bank or financial company, (the) bank could have built a system to ensure faster recovery here,” the report said.

On the fintech side, the bank plans to build partnerships with platforms that can help to bring together scale and seamless experience.

HDFC Bank was ordered to halt launching new digital banking initiatives and freeze credit card issuance until the lender addresses the lapses that led to a series of glitches. RBI issued the 2 December order after outages on the internet and mobile banking systems over the past two years. Before the ban, the bank had been adding over 100,000 credit card customers every month between April and November last year.