File photo of people lining up outside an HDFC Bank ATM| Bloomberg
File photo of people lining up outside an HDFC Bank ATM | Bloomberg
Text Size:

Mumbai: HDFC Bank Ltd., India’s most valuable lender by market capitalization, sees tentative signs of a revival in rural areas at a time when the wider economy is sputtering.

“The recent loan outreach programs underway in rural areas have given us the sense that the consumption in rural and semi-urban areas is turning more positive,” HDFC Bank Executive Director Kaizad Bharucha said in an interview last week. As of end-September, 52% of the bank’s outlets were in rural and semi-urban India, a part of the economy that accounts for at least half of the national output.

Prime Minister Narendra Modi’s government has unveiled several steps to boost the economy, which is growing at its weakest pace in more than six years, including a surprise $20 billion corporate tax cut. The Reserve Bank of India is expected to cut interest rates again this week, after Friday’s report that gross domestic product growth slowed to 4.5% in the September quarter.

For HDFC Bank, the weaker economy had led to a slowdown in loan growth, which eased to 15% in the September quarter from 23% a year earlier. But it remained healthy compared with the overall banking system which saw credit growth slowing to a two-year low just above 8%.

“As a bank we are well positioned to offset a slowdown in either the consumption or investment side as we are present across the spectrum,” Bharucha said. “The demand for credit is not going away. It may just be subdued for a period of time,” he added.

He’s also cautiously optimistic about the outlook for corporate investment, based on the bank’s soundings with Indian executives.

Muted loan growth has hardly dented the upward march in HDFC Bank’s shares, which are about 19% higher so far this year. Now valued at about $96 billion, the company trades around 26 times projected 12 month earnings. That’s almost three times more expensive than the Bloomberg World Banks Index and is the biggest valuation premium on record.

We are deeply grateful to our readers & viewers for their time, trust and subscriptions.

Quality journalism is expensive and needs readers to pay for it. Your support will define our work and ThePrint’s future.

SUBSCRIBE NOW

Meanwhile, non-bank lenders from Dewan Housing Finance Corp Ltd. to Reliance Capital Ltd. have been reeling under a 17-month credit crisis after Infrastructure Leasing & Financial Services Ltd. defaulted on its debt last year. In a further blow to confidence, the Securities and Exchange Board of India placed curbs on operations of Karvy Stock Broking Ltd. after finding evidence it misused client funds.

But Bharucha doesn’t see a wider industry problem.

“There is enough control over stockbrokers and depositories and a default in the segment will not have a systemic impact,” he said. The central bank “has ensured that there is adequate liquidity in the system and availability of credit is not a problem.” – Bloomberg


Also read: India’s credit card boom has run into a problem—Mukesh Ambani


 

Subscribe to our channels on YouTube & Telegram

News media is in a crisis & only you can fix it

You are reading this because you value good, intelligent and objective journalism. We thank you for your time and your trust.

You also know that the news media is facing an unprecedented crisis. It is likely that you are also hearing of the brutal layoffs and pay-cuts hitting the industry. There are many reasons why the media’s economics is broken. But a big one is that good people are not yet paying enough for good journalism.

We have a newsroom filled with talented young reporters. We also have the country’s most robust editing and fact-checking team, finest news photographers and video professionals. We are building India’s most ambitious and energetic news platform. And we aren’t even three yet.

At ThePrint, we invest in quality journalists. We pay them fairly and on time even in this difficult period. As you may have noticed, we do not flinch from spending whatever it takes to make sure our reporters reach where the story is. Our stellar coronavirus coverage is a good example. You can check some of it here.

This comes with a sizable cost. For us to continue bringing quality journalism, we need readers like you to pay for it. Because the advertising market is broken too.

If you think we deserve your support, do join us in this endeavour to strengthen fair, free, courageous, and questioning journalism, please click on the link below. Your support will define our journalism, and ThePrint’s future. It will take just a few seconds of your time.

Support Our Journalism

Share Your Views

LEAVE A REPLY

Please enter your comment!
Please enter your name here