Banking: HDFC Bank Goes Over The Counter

In its quest for growth, the bank is consolidating existing businesses, entering new ones, and leveraging the Net. The target: a growth of 30 per cent.

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It's evident that golf plays a larger-than-life part in Aditya Puri's life. Even off-course. Like now, when, immaculately attired in a light blue shirt and red tie, the 50-year-old Managing Director of HDFC Bank, is in his second floor corner-room office at Sandoz House in Mumbai, sipping Chinese tea from a golf-bag shaped mug.

In fact, it was during a golf game in November, 1999, with Asim Ghosh, the CEO and Managing Director of Hutchison Max's cellular operations in India, that he got the idea of launching mobile banking services. Back at work, he asked C. Ram, the head of technology at the bank, whether it was possible to launch a mobile banking service by January 1, 2000. It was. Says Puri: ''Our objective is to use enabling technologies to deliver value-added services to customers at a value-for-money pricing.''

That sounds like the usual truism CEOs dish out to scribes. But only till you take a look at some facts. The 1999 BT-KPMG 'Best Banks' survey ranked HDFC Bank the sixth; Finance Asia and Euromoney voted it the best commercial bank in India for 2000; and the bank now has a million customers and adds 35,000 new ones a month.

More numbers: the bank's net profits for 1999-2000 were, at Rs 120 crore, 45.7 per cent higher than that for the previous year; its deposit base, at Rs 8,428 crore, 189 per cent higher; and its return on equity, a handsome 29 per cent, places it in the same bracket as super-banks like Lloyds-TSB of the UK. Says Rajesh Sundaresan, 31, Analyst, CS First Boston: ''The combination of profitability, quality, and growth are unique.''

Besides, HDFC Bank's tech-leaning is obvious: when it opened shop in 1995, the bank invested Rs 50 crore of its Rs 200-crore capital in creating a centralised processing system linking all its branches. Explains Neeraj Swaroop, 41, Country Head (Marketing & Retail Assets), HDFC Bank: ''Technology is a strategic differentiator and helps us create efficiency for the customer.''

A measure of technology, a core management team drawn from foreign banks, and a work culture that emphasises speed-''If I have an idea, I just walk into Aditya's room, and we decide then and there,'' claims H. Srikrishnan, 38, the bank's head of transactional banking and operations-are part of Puri's recipe for growth. His approach is the McKinsey-method of viewing businesses across three horizons: today's cash cows like corporate banking and treasury operations that will grow at between 10 per cent and 15 per cent; growth businesses like retail banking and capital market infrastructure that will post rates of 25 per cent to 30 per cent; and new-e moves that will mature within two to three years.

Corporate banking, to cut to the chase, is HDFC Bank's bread and butter. Most banks, both public and private, feel the segment is an over-banked one. That, though, hasn't impacted HDFC Bank's ability to attract big corporates-something that Puri attributes to the quality of products and service, and the collaboration with Chase.

However, while the bank's lending operations are skewed towards the corporate sector, the deposits are 'retail'-garnered at low interest rates from individual customers. That makes the bank's spreads-the difference between the interest earned and the interest paid-at 4.74 per cent among the highest in the industry. It also translates into a lower level of non-performing assets: the ratio of the bank's NPAs to customer assets on March 31, 2000, was 2.54 per cent. Adds Paresh Sukthankar, 38, Head (Credit and Market Risk), HDFC Bank: ''While we are keen to build marketshare, we adopt appropriate risk controls.

Today, the focus, as Samir Bhatia, 37, Head (Corporate Banking), details, is to expand geographically, and also in terms of products so as to generate more business from existing corporate customers. These apart, some of its e-initiatives are targeted at helping companies manage their treasury operations more efficiently.

And its cash management function has grown to include the in-demand area of Net-based supply-chain management solutions (branded Enet), and a joint venture with sesami.com (a firm promoted by Singapore Telecom) and parent HDFC, named sesami.net, which will offer e-procurement solutions. Explains Bhatia: ''There is a huge opportunity for the bank to expand its reach and target new customer segments and revenue-streams.''

Courtesy organic and inorganic (read its acquisition of Times Bank) growth, HDFC Bank's quantum of retail accounts numbered 8.25 lakh in March, 2000. Avers Anand Shanbag, 29, Analyst, HSBC Securities: ''HDFC Bank has the highest proportion of low-cost deposits (6.3 per cent, against an average of 12.5 per cent for other banks) among banks.''

Technology, as Swaroop points out, may be one reason for this success, as it helps to offer better products and services at a faster rate. Says Swaroop: ''We have to ensure that the customer's account with us is his primary banking account.'' Anytime, anyplace access, the facility of making payments to utilities, investment-related services, and a wider range of products are efforts in this direction. Says Puri, who is now busy charting the bank's entry into the credit-card business, having launched debit cards earlier: ''We are a complete consumer bank.''

From the looks of it, HDFC Bank also wishes to be a complete capital market bank: it has a 70 per cent share in the nascent infrastructure for the capital market. If that sounds like a mouthful, try this: it offers cash settlement services to national and regional exchanges; is the clearing bank for the National Stock Exchange (NSE), the Bombay Stock Exchange, the Calcutta Stock Exchange, and the Delhi Stock Exchange; is a major player in the depositories market (the bank deals with four lakh depository accounts); has extended the services it offers exchanges to individual brokers; and provides the payment gateway for e-trading on the NSE.

Today, the bank has 60,000 registered on-line customers and between 10,000 and 15,000 active ones, and provides services ranging from opening accounts, and forex and mutual fund advisories, to utility-bill payment facilities, and a real-world customer relationship manager for personalised interactivity. However, Puri is looking beyond e-banking at b2c activities, through easy2shop.com, a shopping mall. At the site, the bank's customers can make purchases using their account numbers and also avail on-line loans. e-broking is to be the bank's latest foray: it has a 30-per cent stake in HDFC Securities, set up in association with parent HDFC, and is awaiting the RBI's clearance before it can kick-start its operations.

Says Swaroop: ''Whatever financial services they need, customers need not go anywhere else.'' Says CS First Boston's Sundaresan: ''The Net has enabled banks to pursue revenue streams unavailable to them traditionally.'' In HDFC Bank's case, this could be transaction fees on deals done through the portal, as well as ad revenues. The bank's mainstream business-banking-will also benefit from being the financial intermediary of transactions in the exchange.

If HDFC Bank's growth strategy appears aggressive, it is because it is. And the reason for that could well be Puri's late eighties-early nineties stint in Citibank India (as head of corporate banking), when the bank was aggressively courting growth avenues. That doesn't mean rashness, though. Take the bank's proposed ATM network. While HDFC Bank proposes a 200 to 250 ATM chain in the next two years, ICICI Bank is said to be planning over 1,000 ATMs. HDFC Bank's logic is that it may not be a profitable proposition to expand on an incremental basis as it does not add to the bottomline.

The bank isn't alone in its efforts to use the e-nabling power of the Net to drive growth. The Net is an integral part of ICICI Bank's strategy. However, in contrast to HDFC Bank, ICICI Bank does not hold equity stake in the e-broking venture and various community portals of the ICICI group. Thus, any benefits that it would derive can be counted only in terms of higher growth rates for its banking business due to accelerated customer acquisition resulting from the group's e-initiatives. Says M.N. Shenoi, 42, Executive Vice-President and Head (Retail), ICICI Bank: ''We are putting up kiosks at our ATM centres, which will be a complete replacement of the bank's branch and enable customer access to bank accounts through the Net. We are trying to use the Net as a channel for customer acquisition.'' ICICI isn't the only one. Citibank India has a fairly aggressive Net strategy spanning retail banking and b2c intermediation.

Thirty per cent-that is Puri's estimate of the rate at which the bank can grow if it gets its act together on all the three horizons. And technology (especially the Net) will be the basis of this growth. That would be truly ironic for an entity with as real-world sounding a label as HDFC Bank.