In a recent statement reported by the Times of India on August 10, 2024, HDFC Bank’s Managing Director and CEO, Sashidhar Jagdishan, addressed the challenges the bank faced following its merger in 2022. He described the banking environment as increasingly hostile, influenced by significant changes in the global and domestic economic landscape.
Merger Decision and Economic Shifts
Jagdishan reflected on the merger between HDFC Bank and its parent company, HDFC, which was initiated in April 2022. He defended this strategic decision, acknowledging that it was made in a different economic context. At the time, growth projections were optimistic, based on a favorable liquidity environment. However, the global economic situation changed dramatically, necessitating a reassessment of these projections.
Impact of RBI’s Repo Rate Hikes
The Reserve Bank of India’s (RBI) decision to increase the repo rate starting in May 2022 had a profound impact on HDFC Bank. The first hike, a 40 basis point increase, was a response to rising commodity prices following the Ukraine invasion. Over time, these hikes amounted to a total of 250 basis points. Additionally, the RBI implemented measures to drain surplus liquidity from the market, which further strained the bank’s operations. As a result, HDFC Bank faced increased deposit costs, which were essential not only for sustaining incremental growth but also for covering the assets of the former HDFC.
Changes in Consumer Preferences
Jagdishan also pointed out a notable shift in consumer preferences, with an increasing trend towards mutual funds, equities, and real estate. Despite these changes, he emphasized the bank’s commitment to expanding its branch network. He argued that branch density in India remains low compared to developed countries, making it crucial to continue branch expansion to support deposit growth.
Strategic Focus on Deposit Growth
Jagdishan stressed the importance of prioritizing deposit growth over credit growth. He suggested that even if it meant slowing down credit growth temporarily, ensuring strong deposit growth would position the bank to benefit when the economic cycle turns favorable again. This strategic focus, according to Jagdishan, is in the institution’s long-term economic interest.
Importance of Branch Expansion and Customer Engagement
Finally, Jagdishan underscored the ongoing relevance of brick-and-mortar branches for customer engagement. He highlighted that even in major financial hubs like New York and London, bank branches continue to play a critical role. Jagdishan reaffirmed that HDFC Bank would maintain its focus on expanding its physical outlets, seeing them as vital platforms for building and maintaining customer relationships.
