HDFC Bank targets nearly Rs 1-trillion deposit mop-up every quarter

HDFC Bank is looking to accelerate its deposit mobilisation process as it gets closer to merger with HDFC. It is eyeing around Rs 1 trillion of deposits per quarter.

In recent roadshows in Singapore and Australia, the bank’s management, including managing director (MD) and chief executive officer (CEO) Sashidhar Jagdishan elaborated the lender’s strategy on growing its assets and liabilities.  

In the April-June quarter of FY23, the bank had mobilised Rs 45,543 crore worth of deposits while in Q4 of FY22, deposit mobilisation topped Rs 1 trillion.

Both State Bank of India (SBI) and ICICI Bank saw sequential fall in deposits in Q1 of FY23.

But in Q4 of FY22, SBI and ICICI Bank had mobilised deposits to the tune of Rs 2.03 trillion and Rs 47,105 crore, respectively.

Back in May this year, HDFC Bank’s management had said it wants to double the bank’s balance sheet in five years.

For this, capital or loan growth was not an issue, but deposit mobilisation could pose a challenge.

Hence, to garner more deposits, it had planned to add 1,500-2,000 branches each year for the next three years.

In the recent roadshows, the bank’s management sounded confident of its ability to deliver both loan growth as well as deposit growth, a report by Macquarie Research said on Monday.

While loan growth is extremely robust in the system, deposit growth has been lagging — not only for HDFC Bank but for the entire banking industry. 

According to the latest Reserve Bank of India (RBI) data, banking system credit growth is 15.3 per cent for the fortnight ended August 12 but deposit growth is around 9 per cent. This is resulting in the widening of deposit and credit growth to 600-basis points (bps).

HDFC Bank is eyeing a deposit growth exceeding 20 per cent, the report said.

The bank has a customer base of 70 million, of which only 14 per cent have term deposits with the bank.

With an average ticket size of Rs 8-9 lakh, if the bank manages to add at least 1 per cent of its customer base to its term deposit base, it would be able to raise at least $6-8 billion in deposits. This would result in a 300-400 bps growth, the report added.

Further, the bank expects productivity of its branches to increase going forward as 60 per cent of its branches have a vintage of less than 10 years. And, productivity of branches tends to rise exponentially after their vintage exceeds 10 years.

As of FY22, deposits mobilised per branch is around Rs 250 crore.

“If it scales this up to Rs 300-310 crore in the next four years and takes the branch network to 13,000 from the current 6,300, it will have a deposit base of Rs 40 trillion by FY26. This implies a compound annual growth rate (CAGR) of 25 per cent over the next four years,” said the report by Macquarie Research.

The management has reiterated that it should open 50 per cent of incremental branches in metros and urban areas. It is confident that there is still ample scope to increase deposits even from the main cities.

The top 50-100 cities continue to see much larger income/wage increases and higher migration. Hence, they will see good deposit growth, the management believes. The bank has also seen very good growth in customer acquisition.

Currently, it is acquiring about 12 million customers a year compared to 3 million a few years ago. The customer acquisition is expected to increase to 15-16 million in the coming years, the report said.

However, the bank will not increase its deposit rates or drop lending rates aggressively to capture market share.

As far as the asset side is concerned, the bank is confident of demand in the system. On the corporate side, it continues to see strong demand from sectors like roads, power, irrigation, fast-moving consumer goods and consumer durables.

In April this year, HDFC and HDFC Bank announced that their respective boards have approved an all-stock amalgamation of the former into the latter. It is subject to regulatory approvals, thus creating a banking behemoth.

The merger has already received no objection from the banking regulator, and the Competition Commission of India (CCI) has also given its nod for the process.

The bank has requested RBI for a phased-in approach in respect of statutory liquidity ratio (SLR)/cash reserve ratio (CRR), priority sector lending (PSL), grandfathering of certain assets and liabilities and in respect of some subsidiaries.

According to the bank’s assessment, it will need Rs 1.6 trillion to meet the PSL norms after the merger with HDFC. Of the Rs 1.6 trillion, half can be sourced organically by scaling up its gold loan business and affordable housing loans.

The bank was disbursing gold loans in only 985 of its branches till a few months ago. However, now it plans to offer such products through a much larger chunk of its branches. The balance Rs 0.8 trillion can be sourced from PSL certificates.