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Retail banking is once again the nucleus for the top management

In the last few weeks, HDFC Bank has been busy honing its retail strategy quite aggressively. From credit cards to retail loan products, HDFC Bank wants to regain its mojo in the retail segment, which it had deliberately underplayed in the last two years on NPA concerns.

5 mins read   |   25 - May - 2021   |  
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written by Bani Thakkar

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HDFC Bank’s retail push

There are two sides to the HDFC Bank retail push. Let us dwell on the credit card business first. Late last year, RBI had imposed a ban on HDFC Bank issuing new credit cards due to a series of glitches and outage in its net banking app. This invited a series of customer complaints forcing the RBI to eventually put a ban on fresh card issue. With the ban lifted in Aug-21, HDFC bank has tied up with Paytm to issue co-branded cards. It gets access to 30 crore Paytm digital customers as well as access to over 2.3 crore registered merchants. That will help strengthen leadership The more aggressive drive is likely to be on retail lending. HDFC Bank plans to double its retail lending book in the next 2 years. Currently, out of its total loan book of Rs.11.50 trillion, retail loans are just about Rs.3.75 trillion. Now HDFC Bank plans to expand the retail book from Rs.3.75 trillion to Rs.8 trillion over the next 2 years. This will ensure that the retail loan book will recover from 45% of its overall loan book to the old median level of 55%. It is counting on this strategy to beat competition. 

Learning the NPA lessons

With the onset of COVID, the big strategy bet made by HDFC Bank was that the strain would be most visible in the retail segment. In a way, that bet turned out to be erroneous. While there was stress due to COVID-19 and COVID 2.0, that was largely managed by the moratorium offered by the RBI. This helped the banks to stave the chance of any rapid growth in retail NPAs. With the economy having recovered to pre-COVID levels, the retail NPAs can only get better from these levels. In the case of HDFC Bank, despite its proactive shift to the wholesale segment, the bank did see a spike in NPAs in last 2 quarters. 

Taking on competition

In the last one year, the market cap of HDFC Bank has remained largely static while that of ICICI Bank, SBI and Kotak Bank have appreciated rapidly. In fact, ICICI Bank and SBI moved aggressively to fill the gap in retail banking left by HDFC Bank. That was evident in price appreciation of the two stocks. Under the new management, HDFC Bank wants to get back its retail mojo. It not only wants to build market share but also wants to make the best of the surge in consumer spending expected in the post-pandemic recovery. HDFC Bank has the big advantage of superior asset quality with gross NPAs at just about 1.7%. The setting is perfect to revert to its aggressive retail banking strategy!