HDFC Bank’s overall net interest margin (NIM) is likely to remain subdued over the next 12-18 months, owing to reduction in the lender’s retail loan portfolio during the pandemic and the expected absorption of parent HDFC’s home loan portfolio post the proposed merger.

“Ïn the last two years, during Covid, it was a period of uncertainty. We had to protect against the unknown and so we clamped or slowed down on our retail growth, we slowed down some of our MSME growth.

“But, the corporate segment, grew very well due to the huge demand during that period of time,”said MD & CEO Sashidhar Jagdishan at the annual general meeting of the bank for FY22.

While NIMs for the three main verticals of the bank--corporate, MSME and retail remained within the range for the segment, the overall NIM was hit as the business mix “changed dramatically”, he added. This led to the NIM falling to 4.0 per cent in Q1FY23 compared with the pre-Covid levels of 4.2-4.3 per cent.

The bank had reported a NIM of 4.0 per cent for FY22, lower than 4.1 per cent for FY21 and 4.3 per cent for FY20. Prior to that, NIMs for the bank were largely in the range of 4.2-4.5 per cent.

Over the last two years, the share of the bank’s corporate loan portfolio has increased to 53-56 per cent from 45-47 per cent whereas that of retail loans fell from the earlier level of 53-55 per cent, Jagdishan said.

Expecting the share of the retail portfolio to return to pre-Covid levels over the next 18-24 months, Jagdishan said NIMs are likely to improve post that, however, the proposed merger of HDFC could be a dampner due to the addition of lower yielding home loans to the portfolio.

“With the merger, housing loan margins are lesser so then you will have a different range post that,”he said.

Expansion plans

With the HDFC merger seen driving the next phase of growth, HDFC Bank is eyeing a substantial expansion by doubling of the branch network over the next 3-5 years. However, this will be subject to the Covid-19 pandemic not posing any more challenges, he said.

“If we have to absorb the merger that’s going to happen as and when we get our approvals, this will be extremely important. It may not give us the kind of momentum now, but 2-3 years later all the branches that we are planning to open or the expansion plans we are going to have, will help mobilise a lot more liabilities,” he said.

All the new branches, though, will not be “full blown” branches and could be smaller branches, the MD said, adding that city-based or urban branches usually break-even in 2 years whereas those in other geographies take 3 or more years. In FY22, the bank opened 734 new branches, with total branches at 6,378 branches as at the end of June.

HDFC Bank’s share has been steadily growing over the last 5 years, and it now holds a market share of around 11-12 per cent in terms of advances and 9-10 per cent in terms of deposits or liabilities, Jagdishan said, adding that these expansion plans should help the bank grow its market share.

Chairman Atanu Chakraborty said that housing finance is a huge growth opportunity and will be one of the key drivers of India’s GDP over the next decade. “With the advantage of lower cost of funds and the strong distribution network that we have built, there is huge merit in seizing this opportunity,” he added

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