HDFC Over The Decade

HDFC OVER THE DECADE
Largest Bank by Market Capitalization

INTRODUCTION PRODUCTS GEOGRAPHICAL GROWTH M&A
QUALITATIVE BENCHMARKING
QUANTITATIVE BENCHMARKING
MARKET CAPITALIZATION OF BANKS

3000 156,044.08 Cr
No. Of Shares Millions
2500 2000 1500 1000 500 0 0
HDFC
131,352.19 Cr
ICICI
147,905.09 Cr
SBI
500
1000
1500
2000
2500
3000
Share Price
As on 8th March, 2012
Key Information
INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
Incorporated in 1994 Promoted by HDFC

o With support from NatWest Corporation
2,776 branches and 10,490 ATMs (as on Dec12) Profit of Rs. 5,167.07 Crore (fiscal 2011-12) Three key business segments :
o Wholesale Banking Services o Retail Banking Services o Corporate Banking
Key Information Background Information

INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
Deepak Parekh
Aditya Puri
Incorporated in 1994 Promoted by Three key business segments : HDFC o Wholesale Banking Services o Support from NatWest Corporation o Retail Banking Services 2,776 branches and 10,490 ATMs (as on o Corporate Banking Dec12) Profit of Rs.5,167.07 Crore (2011-12)
Focus as Competitive Strategy

INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
1994 o National Westminster Bank Plc. to get 20% stake 1997 o Clearing depository for NSDL 1998 o ASE, ATMs to facilitate Visa, MasterCard and Amex 2000 o Tie up with financial portals, e-brokerages and the National Stock Exchange to enable broker payments for e-broking ventures o Merger with Times bank o JV with e-commerce company of Singtel, SESAMI.com 2003 o HDFCs debt is AAA rated by Fitch
Focus as Competitive Strategy

INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
Targeting NRIs o Quickremit (2003) for NRIs in USA o BSB to cater NRIs in Bahrain (2004) o Tie up with Bank of Qatar (2005) 2008 o Merger with Centurion Bank of Punjab 2011 o 2000 branches across 1000 cities o Asian banker titles it strongest bank in Asia Pacific o Infinia card for HNIs 2012 o Citigroup and Carlyle sell stake in HDFC for $ 1.2 billion and $ 841 billion respectively
Well-defined Target Market : Corporates, NRIs, HNI

INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
Most people are impressed with HDFC Bank's ability to keep its non-performing assets low and growth high. What is your formula? Aditya Puri. The formula is quite simple. We defined our target market and since demand exceeds supply in this country we have not felt the need to either go down the risk ladder or reduce our pricing and our margin to take care of defaults. So as long as you have a clear target market, as long as you test that target market you establish the probability of default and you carry on monitoring it. There is no reason why our default rate should go much higher than what is predicted.
Variety in Products, Lesser processing time

INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
PRODUCT Saving Account: Auto Loan
HDFC
SBI
ICICI
20 Variety of saving accounts: two types of savings range of savings account account savings account and savings plus account 12% 10.50% 13.75%
2 days processing time

17.75% for used vehicle, 2 days processing time

17% for used vehicle, 7 days processing time int rate: 10.15% Above Rs. 30 Lacs. 10.15% Max. - Rs 1000000 -----12%

not available for used vehicle int rate: 11.5% Max. - Rs 10000000 Max. - Rs 1000000 Max. - 18 % 11%
Home Loan Personal Loans Educational Loan Auto Insurance
int rate: 10.75% Max. - Rs 30000000 Max. - Rs 1500000 Max. - 22.25 % 14%
HDFC ERGO
------
ICICI Lombard
Increasing Geographic Penetration

INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
Importance of presence for Retail banking BANK BRANCHES ATM All branches linked online, real time 30000 25000 Anytime, Anywhere, Anyhow banking 25000 20000 75% branches outside the top 9 cities 20000 15000 Customer base of 26 million
15000 10000 10000 5000 50000 0 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Branches ATMs of of HDFC HDFC Branches ATMs ofof ICICI ICICI ATMs Branches of SBI of SBI
Times Bank Merger : More branches, Foray into Retail Banking

INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
TIMES BANK Started in 1995 by Bennett, Coleman & Co. Ltd 1999, RBIs persuasion Lack of capital Deepak Ashok Jain nexus ADVANTAGES FOR HDFC Increase in branches HDFC Corporate banking, Times bank Retail banking
KeyOther Financial Data, As on Mar'99 Data, Mar'99 (In Crores) HDFC Times
HDFC TIMES 2915 3012
77
57
39 1401 1312
34
82.4 27.06 17.5 39.5
Branches ATM Deposits Advances Net Profit
NPA
Favorable Market Reaction for the Merger

INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
1 Share of HDFC for every 5.75 shares of Times bank Bennett, Coleman Co. to hold 7.7% of the combined entity HDFC, Times bank stock prices increased by 30.7% and 33.6% respectively.
Merger with Centurion BoP, Feb 2008

INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
Centurion Bank of Punjab Acquisition Spree.. o Bank of Muscat (2003) o Bank of Punjab (2005) o Lord Krishna Bank (2007) For HDFC, scale and geography For CBoP, HDFC could make use of underutilized retail network NPAs may be bettered, HDFC brand
Key Financial Data, As on Dec'07 Other Data

131,439
HDFC
HDFC
CBoP
CBoP
1977
761
25404
404
1119 123
452
0.4 1.7
Assets
Branches
Profits
ATM
NPA
Not so Favorable market reaction

INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
1 Share of HDFC for every 29 shares of CBoP Deal value over Rs. 9510 Crore
Strategy!!!!!!!
INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
Corporate Retail #1 or #2
o Leader in Retail banking Started after ICICI o Small ticket personal loan o Investment Banking - 1997
Technology as a differentiator
o o o o Real time online core banking UNIX Mobile banking (2000) Data mining and analytical customer relationship cross selling and upselling
Risk Management
INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
HDFC bank inherited its low risk appetite from its parent, HDFC Group
o o o o Picked Clients carefully AAA rated Limited lending to Coal India ICICI pioneer, HDFC moved after studying competitors HDFC intentionally stayed out from certain sectors like telecom, power and agriculture which would have lowered the quality of its assets. o In its first IPO, HDFC bank was extremely conservative and preferred to leave money on the table by selling at par, to avoid embarrassment of under-subscription that parent HDFC had faced in 1979.
Higher CASA, targeted segments High NIM

INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
NIM =
CASA (%) NIM FY'11 (%) FY'12

FY'11
49.82 46.64 3.85
FY'12
INTEREST INCOME o focus on high yielding loans 3.32 o Credit cards, loans to small enterprises INTEREST EXPENSE
o CASA =
45.10 43.50
2.64 2.73
52.70 4.25 4.22 48.40
o Targeting Salaried accounts

SBI
SBI
ICICI
ICICI
HDFC
HDFC
Judicious Selection, Anticipation Lower NPA

INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
NPA Problems in State run banks due to priority lending Low exposure to power, telecom, agriculture sectors Ability to anticipate and recover bad debts o Deccan Holdings Effective NPA management o Focus on Gross NPA not Net NPA o Recovery department, competition o Recovery effect from month of default
NET NPA (%)

FY'11 1.82 1.63 FY'12
1.11 0.73
0.19 0.18
SBI
ICICI
HDFC
Consistent growth, Managed Costs Premium Evaluation

INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
HDFC is the only bank that has shown a CAGR of more than 30% and a consistent Growth in PAT of more than 30%
Net Interest Income (in lakhs)

1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0
INTEREST Profit After Tax (in lakhs)

3,000,000 600,000 2,500,000 500,000 2,000,000 1,500,000 400,000 1,000,000 300,000 500,000 200,000 0 100,000
Interest Income (in lakhs) Interest Expense (in lakhs)
Growth in EPS and Dividends Signals of Strength

INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
Dividend per Share

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0
600.00 25.00 500.00 400.00
Earnings MARKET per PRICE Share
20.00 15.00
300.00
10.00
200.00 100.00
5.00
0.00 0.00 Dividend per Share
Earnings Share Book Value per Share per Market Price per Share
Result
INTRODUCTION PRODUCTS GEOGRAPHICAL GROWTH M&A
MARKET CAPITALIZATION OF BANKS

3000 156,044.08 Cr
No. Of Shares Millions
2500 2000 1500 1000 500 0 0
HDFC
131,352.19 Cr
ICICI
147,905.09 Cr
SBI
500
1000
1500
2000
2500
3000
Share Price
Thank You!
REFERENCES (Indicative List)
o o o o All Charts are from Moneycontrol.com Product details from Bank websites Annual Reports and Newspaper Articles A Bank for the Buck A book on HDFCs story by Tamal Bandyopadhyay
Group 11, Section D
Higher CASA, targeted segments -> High NIM

INTRODUCTION
PRODUCTS
GEOGRAPHICAL GROWTH
M&A
BANK BRANCHES
25000 20000 15000
10000
5000 0
Branches of HDFC
Branches of ICICI
Branches of SBI
Deepak Parekh
Aditya Puri

HDFC Over The Decade

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HDFC OVER THE DECADE

Largest Bank by Market Capitalization

MARKET CAPITALIZATION OF BANKS

No. Of Shares Millions

2500 2000 1500 1000 500 0 0

Incorporated in 1994 Promoted by HDFC

Key Information Background Information

Focus as Competitive Strategy

Focus as Competitive Strategy

Well-defined Target Market : Corporates, NRIs, HNI

Variety in Products, Lesser processing time

PRODUCT Saving Account: Auto Loan

2 days processing time

4 days processing time

7 days processing time

Home Loan Personal Loans Educational Loan Auto Insurance

Increasing Geographic Penetration

Times Bank Merger : More branches, Foray into Retail Banking

82.4 27.06 17.5 39.5

Branches ATM Deposits Advances Net Profit

Favorable Market Reaction for the Merger

Merger with Centurion BoP, Feb 2008

Key Financial Data, As on Dec'07 Other Data

Not so Favorable market reaction

Higher CASA, targeted segments High NIM

CASA (%) NIM FY'11 (%) FY'12

52.70 4.25 4.22 48.40

o Targeting Salaried accounts

Judicious Selection, Anticipation Lower NPA

NET NPA (%)

Consistent growth, Managed Costs Premium Evaluation

Net Interest Income (in lakhs)

INTEREST Profit After Tax (in lakhs)

Interest Income (in lakhs) Interest Expense (in lakhs)

Growth in EPS and Dividends Signals of Strength

Dividend per Share

Earnings MARKET per PRICE Share

0.00 0.00 Dividend per Share

MARKET CAPITALIZATION OF BANKS

No. Of Shares Millions

2500 2000 1500 1000 500 0 0

Group 11, Section D

Higher CASA, targeted segments -> High NIM

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