HDFC Bank deposit growth disappoints MD

22 Jul 2024 , 12:08 PM

HDFC Bank managing director Sashidhar Jagdishan expressed unhappiness with deposits in the June quarter, which coincided with volatility in current account flows that caught the country’s largest private bank off guard.

“I understand that deposits are the most significant aspect of our plan; are we pleased with the deposits? Not really. It has fallen short of our expectations, but if you look at it, this is nothing new,” Jagdishan said on an analyst call after HDFC Bank reported its first-quarter results on Saturday. “But this time around, obviously we were a little bit surprised on the period-end numbers because of some unexpected flows in the current account which was more than what we had anticipated.”

The bank recorded total deposits of ₹23.79 lakh Crore as of June 30, up 24.4% year on year. Gross advances increased much quicker, at 52.6% to ₹24.87 lakh Crore during this time. The significant gap between loan and deposit growth, which puts pressure on finances, has been identified as a regulatory problem by the Reserve Bank of India (RBI) for the whole banking sector.

Within deposits, HDFC Bank’s current account savings account (CASA) deposits increased by 6.2% year on year in April-June, with savings account deposits totaling ₹5.96 lakh Crore and current account deposits totaling ₹2.67 lakh Crore. CASA deposits are a low-cost source of funding for banks.

“Sashi alluded to the current account, how we received ₹540 billion (₹54,000 Crore) in the March quarter and had a rundown of customer utilisation of ₹430 billion (₹43,000 Crore) in the June quarter,” said Srinivasan Vaidyanathan, chief financial officer of HDFC Bank. “Despite all of this, we are the largest current account bank. Current accounts account for 11% of our entire deposit stack. In March, it was approximately 14%.

The bank, which merged with HDFC Limited in July 2023, posted a net profit of ₹16,170 Crore for April-June, an increase of 35.3% year on year.

Jagdishan stated that HDFC Bank’s ground-level staff will focus on the basics on a daily basis, and that reliance on specific period-end metrics was causing unintended performance-related pressures, which the institution wished to avoid.

“When you look at it, the deposit momentum, or gross inflows across the various products in deposits, has really been increasing. “It is a very healthy trend,” he explained.

In HDFC Bank’s annual report, released last week, Jagdishan stated that the country’s largest bank by market capitalization would seek to increase advances at a slower rate than deposits, lowering its credit-deposit (CD) ratio. The CD ratio, also known as the loan-deposit ratio, represents the%age of new deposits that are lent.

While the RBI has not mandated that HDFC Bank reduce its CD ratio, Jagdishan believes it is in the bank’s best interests to do so.

“As I mentioned, it is in our interest to have a glide path (to bring down the CD ratio),” he said, adding that while he would “love” to do this in one year, such a goal may not be realistic.

HDFC Bank’s CD ratio increased to 105% as of March 31, 2024, from roughly 85% before to the merger, as the lender inherited a big volume of mortgage loans but a smaller pool of deposits from the former non-banking financing firm.

“So, a combination of outflows in current account and a combination of at least a ₹160 billion rupee (₹16,000 Crore) of erstwhile HDFC non-retail deposits which ran down has given us a very tepid kind of a net accretion on a period-end basis,” he continued.

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