HDFC Bank CEO Sashidhar Jagdishan Flags Funding Risk Post-Merger, Expects Results To Be Hit By Net Interest Margins

The CEO expects the merger to impact the Net Interest Margins (NIMs) of the bank and this impact is estimated to be visible in the results from the September quarter itself.

HDFC Bank’s chief executive officer (CEO) Sashidhar Jagdishan raised concerns about funding risk for the bank on Friday. These concerns were raised in the bank’s first annual general meeting after the successful completion of it’s $40 billion merger with the parent company HDFC.

According to a PTI report, the CEO informed the shareholders that funding is the major risk associated with the merger. The report also noted that the lender has not been able to secure all the forbearance it sought from the Reserve Bank of India (RBI). The banking authority refused to allow any exemptions on the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements on HDFC’s deposits. 

Talking about the impact of RBI’s decision to levy an increased CRR of 10 per cent on deposit accretions for all commercial banks after May, Jagdishan assured that the bank is capable of managing the challenge and the board, senior management, and staff are aware of the work that needs to be done. “I think time will tell but we're extremely confident at the way that we have grown over the last 10 years, there is no reason why we will not be able to surmount the challenges and even grab the opportunity to grow similarly over the next many years,” the bank’s chief noted. 

He further informed that the lender has sought approval from the shareholders to raise about Rs 50,000 crore from bond issuances going forwards. The CEO expects the merger to impact the Net Interest Margins (NIMs) of the bank due to the “higher proportion of the low-interest yielding housing loans which get added”, and this impact is estimated to be visible in the results from the September quarter itself.

HDFC Bank has always maintained NIMs between 4 to 4.4 per cent range and Jagdishan noted that the bank is sure it will be able to get the returns back to historical levels in about 18 months. “It's been always a philosophy that we will not compromise growth for profitability,” he added.

Addressing instances of senior employees’ misbehaviour being flagged on social media, Jagdishan noted that bank management and the board considers the organisational culture and employees’ satisfaction among their top priorities. The CEO promised to publish an official survey on employee satisfaction along with the next annual report. 

Commenting on including former HDFC Chairman Deepak Parekh as part of the board, the bank’s Non-Executive Chairman Atanu Chakraborty said RBI’s policy of not permitting directors over 75 years of age is making the inclusion impossible. Other additions to the board include Renu Karnad and Keki Mistry, as per the report. 

Jagdishan added a request to include HDFC’s former CEO V Srinivasa Ranjan on the board has already been sent to the RBI for approval.