In the previous article, we understood the financial performance and opportunities of the bank. In the article, we analyze how HDFC Bank tackled financial crises during 2008-09 & IL&FS crises and how it stayed above its peers.
Financial Crisis 2008-09:
HDFC Bank acquired Centurion Bank of Punjab(CBOP) in 2008. This was the time when global financial markets were in deep trouble due to the US subprime crisis and retail asset quality started deteriorating due to job loss in the economy for the banks which led to a sharp increase in NPAs. However, HDFC Bank was less impacted than other banks and was able to post profits.
With rising NPAs in retail loans, most banks and NBFCs started scaling down their retail loans..ICICI Bank is leader in retail lending witnessed a surge in NPAs. So other banks SBI, ICICI, and Axis Bank became cautious in lending and scaling down operations. Even HDFC Bank became cautious in this segment but continued to grow loan books for select quality borrowers.
HDFC Bank has maintained the NPA’s low as compared to other banks. As bad lending forced the banks to report a decline in profits. But HDFC Bank held up its profitability. Since the last crisis to till financial year, HDFC Bank compounded the PAT growth at 24% p.a
IL&FS Crisis:
After the demonetization, when the economy was struggling to grow, the sudden collapse of IL&FS gave a shock to the banking sector. Because of the liquidity issue in the system, IL&FS defaulted on its loan payments. Many major banks have exposure to this infra company. This non-payment led to a huge surge in the NPAs for the banks. Several banks turned cautious in lending which reduced the loan book growth
After the IL&FS crises, yes bank and PMC bank collapse HDFC Bank has seen strong deposits coming in which resulted in over 20% loan growth in the last 3 years which is top among peers.
Refused Loan to Vijay Mallya:
That was the time when the bankers were feeling pride in giving loans to Vijay Mallya as he was one of the business tycoons in India prior to Kingfisher Airlines’ collapse. When Mallya approached the bank for a loan, after the risk assessment, the bank refused to give a loan to Mallya
Somebody in Mallya’s office will tell you, every time the call came from me, Mallya gaali deta tha (he used to abuse). His blood pressure would go up”, referring to how the bank declined Mallya’s requests for loans from HDFC Bank.
“Friendship and banking are not co-related,”., “If you are a bad risk, you are a bad risk. You can be my good friend, I can give you coffee and send you away.“
Adity Puri- CEO of HDFC BANK
Such clear thinking about lending and risk management has never disappointed the lender, whose stock commands one the highest premiums across global banks and has been known for having one of the lowest non-performing asset ratios in the industry and consistently clocking over 20 percent profit growth in the past 10 years and more
Recent RBI’s financial stability report states that GNPA’s is expected to rise to over 15% in the banking sector. After the dust settles created by the covid-19 the weak banks in the sector struggle for the capital to rise at low cost and turn cautious to lend. HDFC Bank has a chance to identify quality borrowers and lend them where others are unable which leads to an increase in loan growth and margins for the bank.
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