hdfc retail final (1)

7/29/2019 HDFC Retail Final (1)

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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

Bharathi . N. (2007), Indian Banking and Finance - A

Paradigm Shift

Bharathi Vijaya G , Reddy Harinatha P(2009),Universal

Banking: How the Concept Is Taking Shape in

India; The Indian banker ;Vol IV,No1-January 2009

Dun & Bradstreet (2008) (an international research

body)"India's Top Banks 2008"

Kumbhar VM (2009) "Alternative banking: A modernpractice in India" professional banker, magazine ,

December ; pp 35-38

Kurup, Parameswaran Narayana (1963), "Some

aspects of commercial banking in India since 1939"

post graduate Diploma Thesis; Gujarat University.

Department of Economics AhmedabadLeeladhar, V (2007), "The Evolution of Banking

Regulation in India - A Retrospect on Some

Aspects" The Bankers' Conference (BANCON),

November 26, 2007, Mumbai

Ministry of Fianc (1991), Report of the Committee onthe financial system (Narasimham Committee),New Delhi, Government of India.Ministry of Fianc (1998), Report of the Committee onthe financial system (Narasimham Committee),New Delhi, Government of India.Nayak, R G (1952), "Recent trends in central bankingpolicy (a general study of central banking policyand full employment)", post graduate DiplomaThesis; University of Mumbai. School ofEconomics and Sociology; Mumbai

Pradhan Prashant (2009), Business Strategies for banksHow to emerge stronger from Financial Crisis; TheIndian banker ;Vol IV,No1-January 2009

hdfc retail final (1)

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