>HDFC BANK: Focusing on improving operating efficiencies

■ Loan growth targeted to be 4-5% above the industry rate and be balanced across segments: Management expects loan growth to be 4-5ppt higher than the industry loan growth rate, which it expects to be about 17% in FY13. Although loan growth in 3Q FY12 for the corporate segment was low at 15% compared with the overall growth rate of 22%, management expects growth to be more balanced going forward.


■ Management expects the competitive environment in the deposits market to ease as interest rates start to fall. This should enable HDFC Bank to maintain its NIM at about 4%. HDFC Bank expects the large banks to maintain savings deposit rates at 4%, which it sees as an equilibrium price (given that the savings bank deposits involve transaction costs of 2-3% and short-term deposits rates are less than 7%).


■ Credit costs to move up from cyclical lows, but this should be offset by lower countercyclical provisioning: Credit costs (at 0.5% for FY11) have been at cyclical lows due to lower NPA formation and recoveries from written-off pools, but management expects costs to move up to normal levels of 1.2-1.4% in the next 2-3 years. However, it expects the increase to be offset by lower countercyclical provisioning. In FY11, the bank also made higher countercyclical provisions at 0.5% of average advances.


■ Focusing on improving operating efficiencies: With network growth moderating, management plans to improve the C/I ratio by 2-3ppt to 45-46% in the next three years. This should be possible since the burden placed by new branches will be lower. Although HDFC Bank plans to open about 250 branches each year, these will account for a smaller and smaller share of the total network over time.


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