Banking in HDFC fashion :-)

Where the most of the global banks have struggled. the HDFC Bank has been able to manage an ability to grow at over 30 per cent annually in the last nine years consecutively and that too with superior credit risk management practices.

The merger of retail focused-Centurion Bank of Punjab (CBOP) with HDFC Bank effective May 23, 2008, will shore up revenues in the medium-term.

Post Merger

1. The inherent synergies of HDFC Bank and CBOP in their retail focus was the driver for the merger, which added around 400 branches to HDFC Banks' branch strength of 760 (as on March 2008)
   
2. 15-20 per cent increase in the asset base to more than Rs 1.7 lakh crore.
   
3. has helped increase the size of HDFC Bank
4. But it has also led to some pressure on key ratios (see Merger Effects) for the combined entity
   
5. CBoP ratios were lower than that of HDFC Bank.
6. Re-branding of CBOP was completed in May itself;
   
7. Training processes to assign all the employees of CBOP in their new roles is marching ahead with almost 90 per cent of the people retrained.
   

Sustained growth

1. HDFC Banks' net revenues have grown at a CAGR of 44.5 per cent in the last five years on the back of net interest income (NII) and other income growing by 43 per cent and 47.7 per cent, respectively.
   
2. Net profits grew by 33 per cent; the lower pace is due to the bank's prudent policy of higher provisioning (last three years).
3. Bank has been going slow on the retail loans and even CBoP's non-issuance of fresh loans (since December 2007) to the two-wheeler and personal loan segments, has ensured comfortable NPA (non-performing assets) levels for the combined entity.
   
4. Gross NPA and net NPA are up 40 basis points and 20 basis points y-o-y in Q2 FY09 to 1.6 per cent and 0.6 per cent, but are comfortable in comparison to peers.
   
5. Analysts say that HDFC Bank, after the merger, would provide higher provisions to the combined entity in line with its own superior provision coverage of around 67 per cent (CBOP's at 55 per cent).
   
6. The advances haven't slowed and this is indicated from the credit-deposit ratio rising from 63 per cent (FY08) to around 75 per cent in Q2 FY09. T
7. The recent CRR cut has released additional funds of around Rs 4,500 crore that could be used for further loan disbursements and provide support to NIMs (CRR balances with RBI do not yield any returns).