hdfc retail final (1)
TRANSCRIPT
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HDFC Bank: Retail Banking Strategy
A Strategy Presentation by:
Chandan Ahuja
Kunal Dev Joshi
Pragya Gupta
Sudhanshu Shekhar
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HDFC: An Introduction
An Indian financial services company based in Mumbai, Maharashtra that was
incorporated in August 1994.
HDFC Bank is the fifth largest bank in India by assets and the largest bank by marketcapitalization as of 1 November 2012.
The bank was promoted by the Housing Development Finance Corporation, a premier
housing finance company (set up in 1977) of India.
As on August 2013, HDFC Bank has 3,119 branches and 11,088 ATMs, in 1,891cities in India.
The bank has a balance sheet size of Rs. 3837 billion.
Reported net profit of INR 5167.07 crore (US$790 million), up 31.6% from theprevious fiscal.
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Porters 5 force Analysis
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PEST Analysis
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IFAS for HDFC BankInternal Factors Weight Rating Weighted Score Comments
STRENGTHS 0.65
Strong Management0.05 4 0.2
Enjoys strong leadershipunder Deepak Parekh and
Aditya Puri
Able to pass on the cost to
customers 0.1 4 0.4
Any increase in CRR or
LAF is reflected in Bank's
base rate immediately
Non Core business like
HDFCs AMC, Insurance
and Real Estate private
Equity returns are strong
0.1 3.5 0.35
Have witnessed big deals
and corresponding profit
in the Annual results
Large share of low-cost
deposits, higher net
interest margin
0.2 4.5 0.9
High NIM of 4.3%
Better quality of assets,low NPA
0.15 4 0.6 NPA of just 1.2%.
Attrition rate in HDFC is
low 0.05 4 0.2
It is one of the best places
to work in private
banking sector
Total 2.65
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IFAS for HDFC BankInternal Factors Weight Rating Weighted Score Comments
WEAKNESS 0.35
HDFC bank doesnt havestrong presence in Rural
areas.
0.05 1.5 0.075
Cost is too high to enter the
market.
Over dependence on Micro
finance companies, to meet
financial inclusion norms
0.1 1.5 0.15
Micro finance companies
have been inconsitant in
terms of performance, bring
uncertainity to the capital
invested by HDFC in them.
High dependence on retail
individual loans.0.05 2 0.1
Low operational efficiency. 0.1 1 0.1
Productivity and process
currently used is a concern.
Not very aggressive in M&A
space.0.05 2 0.1
Believes in growing only
organically
Total 0.525
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IFAS for HDFC Bank
Internal Factor Weights Total Score
Strengths 0.65 2.65
Weaknesses 0.35 .525
Total 1.0 3.175
Total weighted score of HDFC Bank is above average.
Its strategies are effective:
Company is doing well in both core and non-core business.
Company s asset quality has helped in maintaining high profit for itsshareholders.
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EFAS for HDFC BankExternal Factors Weight Rating Weighted Score Comments
OPPORTUNITIES 0.5
The companies in large and
SME are growing at very fast
pace.
0.05 4 0.2
HDFC has good reputation in
terms of maintainingcorporate salary accounts and
internet ba.nking facilities
Opportunities abroad. 0.05 3 0.15Still large amount of HNI's and
NRI's can be tapped.
Greater scope for acquisitions
and strategic alliances due to
strong financial position.
0.15 4.5 0.675
With large number of banks,
scenario is set for inorganic
growth and HDFC is better
placed in the industry.
Fast growing insurance
business in the country.0.1 3.5 0.35
Awareness increasing for the
insurance product among the
citizens.
Untapped rural markets. 0.05 3 0.15
Huge oppurtunity available in
the form of commercial
vehicle segment(loans)
HDFC Bank plans to set up anon-banking finance company
(NBFC) to undertakefund-
based activities
0.1 3.5 0.35
It could help in diversifying
the portfolio and kill
competition.
Total 1.875
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EFAS for HDFC BankExternal Factors Weight Rating Weighted Score Comments
THREATS 0.5
Depressed macroeconomicfactors can lead to rise in NPA
over time.
0.1 4 0.4
Rising Interest rates scenario
has affected the loan recovery ofboth retail and corporate
sectors.
New age banks are a threat. 0.15 3.5 0.525Like Yes Bank, Kotak etc. leading
to increase in high cost deposits.
Stagnant market share. 0.05 3.5 0.175
Infusion of more banks and
High Volume/Low ratesscenario will erode profitability
Loss of market share to
commercial banks, NBFC's and
HFCs
0.05 3.5 0.175Increasing competition may
lead to further reduction in NIM.
Positioning as an expensive
bank due to minimum balance
rules
0.1 2.5 0.25
Minimum charges of Rs. 10,000
on savings account, compared
to "0" of PSU banks
Operational expenses due to
Varying and In-Convenient ECS
dates and credit card defaults.
0.05 3 0.15It reduces the efficiency and
profit margin of the product.
Total 1.675
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IFAS for HDFC Bank
Internal Factor Weights Total Score
Opportunities 0.5 1.875
Threats 0.5 1.675
Total 1.0 3.55
Total weighted score of HDFC is above average.
It needs to bring following changes to remain market leader:
Industry needs to consolidate, HDFC should be in ideal position to
take the lead. HDFC needs to diversify into NBFC and seriously weigh options in
rural banking to stem growth.
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SFA
Strategic Factor Analysis Summary (SFAS)
Strategic factors Weight Rating (1-5) Weighted Score Duration Comments
Short Intermediate Long
Strenghts High customer sa 0.08 4 0.32 + + Customer satisfaction key to success
High profitability 0.10 5 0.50 + Financial stability
Diversified netw 0.08 4 0.32 Reaching out to end customers
Accredited produ 0.05 3 0.15 + Products meeting standards
WeaknessMajority shareho 0.09 4 0.36 + + Ownership U.S. dominated
High dependenc 0.07 3 0.21 + + Major retail customersgrowing organica 0.07 4 0.28 + No inorganic growth
No next line of l 0.06 3 0.18 + Incompetent management
Oppourtu Untapped rural 0.08 3 0.24 + Rural markets still untapped
HDFC life insuran 0.05 2 0.10 + + Non-core business contributing significantly
Automating busi 0.04 2 0.08 + + Automating business and processes
Threats Loss of market sh 0.09 4 0.36 + Competition from ICICI and foreign banks
Increase in fundi 0.06 3 0.18 + Interest rates rising
Lack of adequate 0.05 3 0.15 + No infrastructure in rural sector
Overseas diversi 0.03 2 0.06 + + Foreign risk
1.00 3.49
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TOWS Matrix
Strengths Weakness
Oppourtunities SO-Strategies WO-Strategies
Threats ST-Strategies WT-Strategies
Insurance (non-core business)
growing rapidly.
Untapped rural markets.
Expansion in foreign markets.
Loss of market share to commercial
and foreign banks.
Increase in funding cost.
Lack of rural infrastructure could
constrain investment.
High competition prevailing in the
Use profitability to curb the increase in funding cost
Offer better quality products and services to compete
with the other players in the industry
The company can use its profits to expand in the foreign
markets and non core businesses
The company can look at using its diversified network
and distribution channels to tap the rural markets
Expansion in foreign countries will increase international
presence
Business processes and systems can be better managed
by tying up with IT companies and using new and latest
Develop strength in Individual Loans.
Increase focus on Agriculural and Rural Lending.
HDFC is the market leader in retail loans in the country.
Diversified network and revamped distribution strategy.
High profitability and Net interest margin and low NPA's.
Bank is proactive in passing on cost and benefit to
consumers.
High customer satisfaction and low response time.
Company non-core business performing well.
Majority stake held by U.S. financial groups which are
under stress due to slowdown.
High dependence on individual loans.
Processes and systems need to be better managed and
customer service staff needs training.
Marginal international presence.
Management cover insufficient and no next line ofTows Matrix
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Strategy Formulation
Focusing onquality and noton quantity anddelivering high
qualitycustomerservice
Leveragetechnologyplatform and
open scalablesystems to
deliver moreproducts to
morecustomers and
to controloperating costs
Developinnovative
products andservices that
attract thetargeted
customers
Developproducts andservices that
reduce bankscost of funds
Focus on highearnings growth
with lowvolatility
Business Strategy
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Options
Good customerservicing after sales
Services to beavailable at discounted
prices
Waiving of extracharges
Customer Retention Strategy
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Provision Cover Strategy
Increase in provisioning for Loans .
Leveraging Technology
Increase in ATM Strength
Mobile banking, internet banking &
phone banking.
Development of Improved and secured
payment mechanism.
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Marketing and Branding Strategy
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Choices
Differentiating Factor for HDFC is focus on low cost retaildeposits. Corporate deposits are costly and volatile as corporatedeposits are of short term nature and flowed out easily withchanges in interest rate.
Bank is focusing on high growth with low risk while othersachieve with risk of expansion in non performing loans.
Achieved 40% year to year growth in assets and gross NPA
declined. More Conservative than required as per regulations. Made
specific provisions that cover 70% of its NPL.
More aggressive on retail assets. Different retail products includeloans against shares, car loans , personal loans etc.
In order to increase ROE focuses on stable stream of income byvalue added services such as cash management , custodyservices and distribution of financial services while other banksrely on treasury operations.
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Corporate Strategy
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Growth
HDFC Bank has posted profit growth of over 30% every year for thelast decade, richly rewarding its investors. Since 2008, HDFCBanks shares have risen nearly 87%, while rival ICICI Bank is
down about 16%.
Trading at five times its book value, HDFC Bank is the worlds mostexpensive lender and is among 15 banks globally to trade at apremium to its intrinsic value a measure of how much sharesshould be worth when considering expected growth rates overthe next decade.
So what is the secret sauce?
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The Secret Sauce
Selective lending.
Diversified exposure. Focus on low-cost savings deposits.
Shunned risky, exotic products.
Picky about its Customers.
An average CASA ratio of 56% over last seven years, a NetInterest Margin (NIM) of 4.2%.
The banks infrastructure funding is largely limited to working capital
loans to contractors of project developers, keeping exposures
smaller, shorter and relatively safer.Non-performing loans to remain within its five-year average of 1.3-
1.5%
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The Growth Challenge
If balance-sheet growth remains slow, then maintaining 30% profit
growth will not be easy.
HDFC Bank hopes to increase its market share and is charging intoIndias hinterland, where millions still have no bank accounts.
Stayed away from project finance.
"We plan our growth across three horizons: one that I can see infront of me; second, what I can see in front of me but will become
a big business five years from now; third, at the bottom of thepyramid, which will become a big business, maybe five yearsfrom now, Aditya Puri
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Portfolio
HDFC has steadily improved its asset qualityby concentrating on top clients.
The bank is nimble-footed enough to changeits loan mix in different scenarios.
Analysts say the bank is growing ahead of the
sector across most retail segments.
33 per cent growth in retail loans year-on-year(YoY) and 4.4 per cent quarter-on-quarterwas predominantly led by automobile loans(up 19 per cent YoY), commercial vehicles
(60 per cent YoY), business banking (27per cent YoY), home loans (up 23 per centYoY) and personal loans (34 per centYoY). These segments cumulativelyaccount for 80 per cent of the retail loans.
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A Good Parent
Centurion POB Merger/
Asset Quality
Rural andAgri Focus
Lack of InternationalPresence
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The long Term Strategy
Growth Driver for 2014.
A retail-led strategy means more consumer touch points.
Today, nearly 35% of the branches will be making a loss because ittakes 20-24 months before a branch breaks even.
Retail, Agriculture or Commodities: share and develop cross-sellingrelationships.
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Recommendation
Increase Overseas Focus:
Although HDFC Bank has grown domestically at a fasterrate, ICICI Banks global reach still makes it a biggerentity.
Mobile Penetration:
Launching Mobile services in Hindi is a great initiative,however this needs to be extended to other majorregional languages as well.
HDFC needs bring more technical innovation to competewith ICICI, SBI and others.
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Bibliography
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