"We don't have an NPA problem," said Aditya Puri, the managing director of HDFC Bank, in an interview with BOOM about whether depositors can count on HDFC bank in the pandemic to keep their money safe.
In the month of May, the Reserve Bank of India had extended the loan moratorium for a period of three months till August 31. Non performing assets of HDFC Bank deteriorated to 1.36% in the first quarter of this fiscal as compared to 1.26% in Q4FY20.https://youtu.be/ShdzR-ge8Lo
But the exact impact of the pandemic is yet to be assessed. The RBI further commented that, "Given the fact that impact of the moratorium is still uncertain and evolving, the exact nature of how the same will play out on the quality of banking assets is difficult to ascertain accurately."
Speaking to BOOM, HDFC Bank's Aditya Puri said that he is not worried about the rising NPAs as the bank's risk management processes are in place.
The interview can be watched here.
Edited excerpts of the interview can be read below.
Govindraj Ethiraj:
Hello and welcome. I am Govind and you are watching From The Frontlines — whether it's the economy, healthcare or banking … We speak to newsmakers - people who decode the shifts and pin the trends.
Today, a special guest- He is the longest-serving head of any bank in India.
Under him, HDFC bank has grown to become the country's largest Pvt sector bank.
Joining me is the MD of HDFC bank - veteran banker Aditya Puri.
First of all, tell us.. with the severe pressure on the economy and the banking system how safe is our money in the banks?
Aditya Puri:
Here is a good guy. You're allowing me to do my marketing as to why you should be with HDFC Bank. Firstly, we don't have an NPA problem. Two, we think COVID is an opportunity. Three, Standard and Poor's thinks that we are one of the safest banks globally. And even the COVID, with all its problems, cannot result in a downgrade. That's not me saying it, it's Standard and Poor. If you look at what Moody's says they've got a fantastic system.
So what we have got is capital adequacy of 18.5%, we've got the lowest NPA ratio of about 1.3 or 1.4%. If you take our contingent provisioning, as well as our specific provision, we provided 130% of our NPA, so you can't take a hit to the proper AWS account. We spent on our technology, we've got the distribution, we are not seeing a major jump in NPA, yes, some jump will come but that we are providing for and we have all the liquidity in the world. So I think this is like Guinea Gold. So what do you need to see in what's the bank's rating — What is its NPAs?
What's its distribution?
What's its margin?
What's its capital?
And that's how you get your money back. If you're making money, and he hasn't given money, where he's not going to get it back? And the rating agencies think so. And all of us HDFC bank employees think so, and I think so, then you're very safe.
Govindraj Ethiraj:
How are you ensuring your bank remains robust and trustworthy?
Aditya Puri:
Firstly, we recognise that we are a fiduciary organisation, we must pay our money back to the depositors. So our credit process, our target market, our lending, monitoring, our technology, are all focused on ensuring that we have the margin. And that margin is sufficient to pay for the normal bad debts. And we create provision for that.
And that leaves us with enough money to pay the investors as well as interest to the companies. And that's how we will reach the capital area. Because if you make losses, your capital gets wider, we keep adding to our capital adequacy with the reserves if you don't provide, and that's very sad, because that lack of provisioning will actually lead to your capital erosion, but it is a disguise. So and the brand, your brand also has to project and look, this is what we stand for. And that's all for what is the brand is what we stand for that trust integrity and your money is safe.
And so I'll tell you one very good illustration, after I'd given a speech at the GQ Awards, one of the iconic actors in this country asked me that you bankers are very greedy. And because of that, we lose so I said, Sir, can I ask you a question? If you go to the market and everybody is selling tomatoes for two rupees a kilo, and then one guy's selling it for 8 annas and you buy that tomato from that fellow, right? Are you greedy?
You lack common sense? What is it?
So there is no free lunch in this country.
I said selling it for 8 annas because there's a problem. Similarly, if you go to people that are offering you ridiculous returns, he can't get those returns.
So you must ask them, What is my risk? A normal fellow — when we present to a customer — we first say you tell us what is your risk appetite? Some will say I under no circumstances I would want my capital hit.
Some will say I'm willing to take risk on 20% of my portfolio because I'm 45 years old. Some, like me, will say I am 70 and look, I've worked very hard, I want the cash under my backside and enjoy myself. And I want no risk. I don't want to think about it. I thought about it all my life. Now I don't want to think about it, I want to enjoy it. So ultimately, it's common sense.
Why would somebody give you a very high return? You're taking a risk, don't do these things. I think the Reserve Bank also says this same thing. And why would somebody give you a tip somebody asked me what would be the dollar-rupee (rate). I said if I knew then I would be in the Bahamas. Why would I talk to you? I give you some sort of reason. So it's reasonably simple.
That fellow who follows all these processes will have a look like this with good capital adequacy, good provisioning, good margin, good distribution, good growth rate because he's catered for the future.
Govindraj Ethiraj:
Right. These are difficult times, I'm talking about the COVID times and the economy under stress. Many businesses are under stress, I mean, severe stress actually, does this affect banks? And to what extent does it affect banks? And how do banks stay safer in these times? Again, linking to the point that is my deposit safe?
Aditya Puri:
So, there are two parts to this. Are banks safe? I think so, I think there is. The safety is relative safety. So if you take our case, we have lent, we've been very careful when I say you define the target market, or target market is middle and upper-middle when we want to do business. Separately, we lend to a sustainable livelihood. But that's something that is not obvious. So if you have lent to the better sections of society, those guys will not be hit so much at this point of time.
So the AAA corporates, the people who have a salary, if you've lent to them, the guys who have a local business, they won't be hit, you know, you'll be surprised that the banyaa, they're hardly leveraged, so they won't be hit. It's these guys and then you have to price it right. So if you go down the risk ladder, you must move up the pricing very substantially to pay for the default. So the fellows who are with the right target market, as I told you earlier, as far as we think, yes. Will there be some optic? Yes. Even in our portfolio? Is it going to be light? The answer is no.
What we have provided for, the answer is yes. Do we see COVID as an opportunity? Absolutely. The whole world is in turmoil. We are sitting on good capital, adequacy and deposits. What more can I ask for? Anybody who wants to sell his asset to me, I'm a buyer. So we are sitting on deposits, we have good capital adequacy. Our engineers are under control. And we are growing, you see the results. So we see this as an opportunity to gain market share, HDFC Bank will only become stronger and stronger over the next two to three years.
Govindraj Ethiraj:
So last question: You retire in less than a month. When you look back to what you've been a part of - What is a mistake that you may have made or almost made, which you maybe see other people making, which in some ways hurts the basic or the essential stability of an institution like HDFC Bank?
Any advice to the younger lot?
Aditya Puri:
No, the mistake is very simple. If you don't price right if you don't monitor, if you don't adjust your strategies to what is happening. The moment you see that you're not going to be able to pay a return to your shareholder or have any issue. And so there are ratios for this. To pay interest to your depositor and his principal, you either stop business or you make sure that you change your model. And the good part is before I joined HDFC Bank, I had 20 years experience in about 12 countries.
So I made my mistakes with Citibank and learned a lot there. And fortunately, that gave me the ability and a very, very strong team. We hired the best even when we started HDFC Bank. Today everybody wants to say, 'Oh, these fellows made money.' The same fellows were laughing when we left and said you're bloody nuts. So we took the risk, we worked bloody hard and we made fair money with wide options, which came because the people did well.
So you know, when we all left, you needed a passion. The guys who initially came to the bank said we can create something. People thought I was nuts. I had golden handcuffs in Citibank when I left. I left a couple of million dollars at that time — 25 years on the table. Because I said I'll feel the satisfaction of doing something. And I must tell you, all the youngsters, if you go into something just to make money, you're going to fail. You have to go into your passion. You have to work like bloody hell. The money will come as a byproduct.
Govindraj Ethiraj:
Mr. Puri, thank you so much for your time and sharing your thoughts and insights. I do wish you a safe stay wherever you are.