The Hindu Business Line : Banks’ profit margins less than 5%, says Aditya Puri

Mumbai, Nov. 26 Profit margins of Indian banks are on par with global banks and are less than five per cent on an average, said Mr Aditya Puri, Managing Director, HDFC Bank.

Referring to the McKinsey survey, which observes that Indian banks have high profit margins at five per cent, Mr Puri said the survey does not take into account the cost that banks have to bear on account of the Cash Reserve Ratio and Statutory Liquidity Ratio.

“For every deposit I take, I have to reserve 7.5 per cent as CRR, for which I do not earn any interest. I also have to maintain SLR at 25 per cent, on which I earn much less interest than I pay for the deposit,” he said.

CRR is the statutory reserve that has to be maintained by banks either in cash or as balance with the Reserve Bank of India.

SLR is the statutory reserve that is set aside by banks for investment in cash, gold or unencumbered approved securities valued at a price not exceeding the current market price.

Mr Puri was speaking at the sidelines of Bancon, a banking seminar, held here today.

Recovery practice

Speaking about recovery practices of banks, Mr Puri admitted that it was a bit overdone, but most banks have policies in place.

As per the Banking Codes and Standards of India, in case of default, a letter has to be sent to the borrower and he has to be given a chance to explain the reason and undergo credit counselling.

“The regulator has asked banks to examine the capacity of the borrower and if it is not satisfactory, the loan could be withheld,” Mr Puri said.

Credit growth

Credit growth could be around 22-23 per cent for the industry. “It is a function of GDP growth and if GDP grows at 8-9 per cent, credit could grow at roughly three times.”

About easing of interest rates, Mr Puri said it would depend on the cost of deposits.

In talks with Cisco

HDFC Bank is currently in talks with Cisco to provide technological support for faster customer turnaround time and relationship pricing.

Accessing underbanked areas can work only when the cost of devices is reduced, so mobile banking is strongly innovative. However, RBI’s banking correspondent model has helped to some extent. “It is a low return, low value transaction and therefore the cost structures must be reduced to make it work,” Mr Puri said.