Happy to sacrifice margins in lieu of deposits: HDFC Bank

HDFC Bank, which is on an expansion spree, wants to continue focusing on garnering deposits amid slow credit pick up, even if it leads to lower margins in the trade off.

"We are happy to have excess liquidity up to a certain point in time, which is reflected in the current margin. Our margins would've been higher by 15 basis points if we had slowed down on deposits. But from a medium to long term, this is the right way to do it, even if it shaves off a bit of margin," said Jimmy Tata, chief risk officer, HDFC Bank.

The bank's Net Interest Margins (NIMs), that have largely remained in the tight range of 4.2-4.4 percent, slipped to the lower rung after more than a year.

In July-September quarter, the bank's NIMs eased to 4.2 percent, lower by 10 basis points as compared to previous quarter and same period last year.

In the first quarter, HDFC Bank's NIM was higher than most of its peers.

The bank's deposits grew 22.6 percent at the end of the second quarter, which was higher than system growth of 9.4 percent. The bank's term deposits grew by 28.3 percent in the same period.

Over the last two years, the bank has focused on mobilizing granular retail deposits, Tata said, adding that the lender will continue on the path going forward.

The bank also aims to maintain stronger than usual liquidity position to be able to support higher loan growth expected in coming quarters. Its loan book expanded 19.5 percent in the second quarter of current financial year. The bank expects credit growth to be "reasonably healthy" going forward.

HDFC Bank maintained Liquidity Coverage Ratio (LCR) at 133 percent, against regulatory requirement of 100 percent.

LCR is the stock of High Quality Liquid Assets (HQLA) of bank that should at least match a month's worth of its net cash outflows. These outflows include retail and term deposits.

HDFC Bank added 211 new branches in the first six months, simultaneously adding to its employee base. This is an exponential growth, compared to the 38 branches added in the first half of last year.

The bank said the expansion is part of the strategy to add 600-700 branches. It, however, did not specify the time period.

At the end of September, HDFC Bank had a network of 5,314 branches. In March 2019, the number stood at 5,103 branches.

Its employee costs grew 23 percent in July-September quarter, over the same period last year. The bank aims to continue to add more branches going forward.

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