Tenth Anniversary Special
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Banking
HDFC: Strong financial franchise
Suresh Krishnamurthy
ALL credit to the HDFC group that made the most of the opportunities that emerged in the domestic financial sector over the past decade. Creating many on the way. HDFC has made a mark, either directly or through its subsidiaries, in conventional banking, asset management and insurance.
An environment of financial sector deregulation that facilitated the delivery of banking and related services to the retail sector, in particular the affluent section of the Indian households, played no small part in the growth of HDFC group. The magnitude and quality of success enjoyed by HDFC is, however, mainly attributable to its strategies.
Two factors have played a key role: Brand building and reliance on technology. The strength of the HDFC brand built mainly around its retail home finance business gave the company a head start when it forayed into other segments of the financial sector. An early start in the use of technology and the rapid pace it was absorbed has helped it offer better services, well ahead of competition.
These aspects have also driven the success of HDFC Bank by mobilising and sustaining low-cost retail deposits. The bank's cost of funds became the lowest in the industry within a few years from the commencement of its operations.
Technology also helped the bank deliver cost-efficient quality services to the corporate sector. This helped the bank garner market share in advances, and also grow its fee-based income, which is essential for sustaining robust profitability. Its consistent focus on quality assets has added lustre to its performance. As a result, it also has the lowest proportion of bad loans in the banking industry.
Since 1999, most other banks, including public sector banks, started following the HDFC Bank model — mobilise low-cost deposits and focus on quality assets — a reminder of the soundness and the success of the strategies employed by the HDFC group.
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