HDFC Bank CEO Says Retail Delinquencies May Rise In The Near Term

For the first time in so many years we probably may not have a grip on what is going to happen, Jagdishan said.

A photo of HDFC Bank CEO designate Sashidhar Jagdishan. (Source: HDFC Bank)
A photo of HDFC Bank CEO designate Sashidhar Jagdishan. (Source: HDFC Bank)

Retail delinquencies may rise in the near term as borrowers face the impact of a second wave of Covid infections, the head of India’s largest private bank said in an investor call hosted by Macquarie Research. Retail loans are likely to show higher delinquencies but borrowers should be able to cover up, Sashidhar Jagdishan, chief executive officer of HDFC Bank, said.

“...It’s more of a timing difference. We should see asset quality come back to what we saw in the March quarter in a couple of quarters’ time,” Jagdishan said in the conversation which has also been posted on the bank’s website.

HDFC Bank saw a rise in cheque bounce rates in April, a reversal of the improvement it had witnessed since December 2020. In May, however, bounce rates once again normalised, he said.

Uncertainty, however, is running high,

“For the first time in so many years we probably may not have a grip on what is going to happen,” he said.

Retail borrowers who had availed regulatory dispensation on their payments last year, Jagdishan said, are more likely to default.

The Reserve Bank of India had allowed a loan repayment moratorium for borrowers between March and August 2020. It had also provided borrowers with a one-time restructuring scheme where they could defer their repayments by up to two years. One-time restructuring for retail and small business borrowers has been reopened now.

While corporate borrowers have largely stayed away from restructuring their dues, HDFC Bank’s retail customers had made use of it.

As on March 31, retail loans worth Rs 5,456 crore were restructured under the one-time scheme, HDFC Bank disclosed as part of its quarterly results last month. Retail loans formed 92.5% of the loans restructured by the bank under the scheme.

In the second wave, concerns are also emerging from rural areas, Jagdishan said.

In Covid 1.0 the rural areas were reasonably insulated, but now we see a fair amount of health concerns in the remotest corners and I think that will play to some extent on both business momentum and recoveries.
Sashidhar Jagdishan, CEO, HDFC Bank,
Retail Loans Dominated Covid Restructuring For Top Private Banks 

On Technology

Since December 2019, there have been three events where customers were unable to use HDFC Bank’s digital banking services. Following those incidents, the RBI barred HDFC Bank from issuing fresh credit cards as well as implementing any new digital launches till it had fixed its IT infrastructure. The RBI also appointed a third-party audit firm to review the changes that HDFC Bank had implemented.

“The audit report has been submitted to the RBI and they [HDFC Bank] don’t want to guess when the approvals will come through,” Macquarie said.

HDFC Bank, according to the research house, has promised certain deliverables to the regulator and was on track to implement the “next big piece” due in a couple of months. The bank has already moved to a new data centre during the pandemic and is trying to build a “state of the art data centre” in the medium term, Macquarie said.

HDFC Bank is working on decoupling its systems, so that an outage in one application does not affect the rest, Jagdishan and Srinivasan Vaidyanathan, chief financial officer at the Indian lender, who also participated in the interaction, were quoted as saying.

“They [HDFC Bank] are already migrating applications to a cloud-based architecture and would strive to completely move towards cloud-based systems in the medium term,” Macquarie said in the report.

Meanwhile, in HDFC Bank’s absence from the new credit card market, lenders such as ICICI Bank Ltd., SBI Cards & Payment Services Ltd. as well as Axis Bank Ltd. have stepped up card issuances. ICICI Bank has been the most aggressive in gaining share over this time.

“We are impacted. It’s a blot on our reputation. It’s a blot on the fact that we are unable to source new cards,” Jagdishan said. The bank is taking these strictures in its stride and is aiming to bring in larger changes in the medium to long term so it may not face these problems in the future, he told Macquarie.

On April 30, the private bank had announced a rejig of its leadership team, with key members now holding new responsibilities. This, according to Jagdishan and Srinivasan, was aimed at bringing those who are second in hierarchy to the fore and giving them leadership responsibilities.

“This also encourages the pyramid below to work and contribute better as they will have a clear well defined career path/plan in the organisation,” Macquarie said citing the conversation with the bank’s chiefs.