Rate-driven deposit accretion not part of our strategy, says HDFC Bank CFO

Mumbai: Offering higher rates on certain high-value deposits to increase the pace of deposit accretion is not part of HDFC Bank’s strategy, unlike some of its peers, and the bank will continue to focus on organic and granular deposit mobilisation via its branch network, chief financial officer Srinivasan Vaidyanathan said.

“We do not want to differentiate through offering higher rates on bank deposits to compete with peers, or any other such rate-driven programmes or high-cost deposits of a larger ticket size. That’s not the strategy,” he said during the bank’s Q1 earnings call.

HDFC Bank’s retail branches currently contribute around 84% of total deposits, with the granularity of deposits having increased by up to 100 basis points since last year, Vaidyanathan said, adding that the focus will remain on driving deposits through branches.

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Deposits flat in Q1

He attributed the sequentially flatness in deposits to seasonal factors – deposit accretion tends to be lower in the first quarter of a financial year – and to tight liquidity conditions in the market during the quarter.

Total deposits grew 24.4% on year to ₹23.8 trillion as of 30 June. Low-cost current and saving account (CASA) deposits were up 6.2% on year and accounted for 36.3% of total deposits.

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Gross advances at the end of the quarter were at ₹24.9 trillion, up 52.6% from the previous year. Retail loans were up 100.4%, commercial and rural banking loans 23.0%, and corporate and other wholesale loans 18.7%.

Vaidynathan reiterated managing director and CEO Sashidhar Jagdishan remarks in the annual report, saying that while advances growth would be slower than deposit growth to help normalise the credit-deposit ratio, overall loan growth was expected to remain healthy. The bank’s credit deposit ratio was around 104%.

Cautious on unsecured loans

HDFC Bank continues to be cautious and selective on the unsecured retail business, including personal loans and credit cards, and will continue to lend only to high-credit quality consumers, he said.

On wholesale lending, Vaidyanathan said that while the bank was seeing good credit demand, rates continued to be benign and spreads minimal because of aggressive pricing by competitors and the good credit quality of corporates taking loans. Here, too, the lender will remain selective until rates normalise and then use its wholesale banking partnerships to explore further lending opportunities, he added.

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HDFC Bank posted a 35.3% on-year increase in net profit to ₹16,170 crore in Q1. Net interest income (NII) grew 26.4% to ₹29,840 crore. Core net interest margin to total assets was 3.5%, and on interest-earning assets 3.7%.

The bank’s gross NPA ratio deteriorated to 1.33% as of 30 June from 1.24% in the previous quarter, but was better than the post-merger level of 1.41%.

The rise in NPA was largely due to cyclical factors such as delinquencies in the agriculture portfolio, Vaidyanathan said. Excluding this portfolio, the bank’s gross NPA ratio was 1.16%, also slightly worse than a quarter ago (1.12%), but better than it was after the merger with HDFC Ltd on 1 July 2023 (1.25%).