The Hindu Business Line : `Consumer finance a major growth area'

A RECENT poll by Asia Money has ranked HDFC Bank as the number one bank in India in categories such as customer service, back-office or post trade finance, competitive and prompt spot pricing, forex options provider for non-Asian currencies, currency strategy provider and technical analysis.

The latest issue of the Asian Bankers Journal ranks HDFC Bank at No 7 in the list of strongest banks. In an interview with Business Line, Mr Aditya Puri, Managing Director, HDFC Bank, speaks of the concerns facing the banking industry and the bank's strategies for growth. Excerpts.

Most banks are now focusing on retail growth. HDFC Bank's retail loans too have grown over 70 per cent in the second quarter this year. Going ahead, from where do you see more growth?

Seventy per cent growth was an aberration because we were starting from a small base. As our business grows, the growth percentage will come down. But, we will keep growing.

Consumer finance opportunity in India is one of the best available anywhere in the world. Sixty-four per cent of our GDP is domestic consumption-based. We have the youngest population in the world, demographics are changing, types of jobs are changing, and now we are talking about reforms, which will lead to further impetus to consumer dynamics.

In addition, our loan to GDP for consumer loan is 6 per cent; in most developed countries it is 100 per cent and in marginally developed countries it is 40 per cent. So consumer finance will continue to be a major growth area.

Will this be at the cost of corporate growth?

Not at all. If you look at it, last quarter GDP growth rate for manufacturing has been 11 per cent. You cannot ignore a sector that is growing at 11 per cent. What will happen (it has already happened for us) is that the larger corporates will borrow from the market or at rates that may not be profitable for banks. But when you start to revamp the agriculture sector and food processing chain and start developing the rural economy, there will be substantial growth in middle market and small-scale business.

Will HDFC Bank consider the inorganic route to growth?

We are always looking for acquisition, but it must benefit our shareholders. It must give us either market share or new geographies. So, when we look around, there are not too many eligible candidates. Pricing is an issue with old private sector banks. Unions are also an issue, if we take old private banks.

Are there any plans to expand your foreign operations? If yes, which are the likely markets you are looking to tap?

We have applied to the Reserve Bank of India for branches in Hong Kong, which will be our gateway to China. We do believe India-China trade is set to explode. We have also applied for branches in Singapore and London.

We have strategic arrangements in Dubai, Doha, Qatar, Saudi Arabia, Bahrain and Kenya.

Do you think a rise in interest rates is likely?

It is very difficult to guess interest rates. The Finance Minister has given short-term rates. In the medium to long-term, there would be an upward bias. But when this will happen I do not know. My view is the rates will depend on inflation, forex rate, oil and liquidity situation, and demand for money.

What are the challenges facing the Indian banking industry?

The concerns are several. First, we have to find a way to participate in the major growth expected both in the semi-urban and rural economy. Then we have to ensure that our risk management practices are such that our non-performing assets are under control. There has to be a balancing of social and financial objectives. This has to be followed by consolidation.

What do you think of consolidation in the Indian context?

The fact that you need consolidation in the banking sector is a given thing. There are 90-odd scheduled commercial banks in our country, thus fragmenting the customer pie. This increases cost for banks, reduces profitability and the customer also does not get the best deal.

Consolidation in the private sector will not change the structure of the banking industry. For anything to really happen, it has to happen in the 70 per cent space occupied by the public sector banks.

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