How HDFC Bank Is Triumphing in India
Aditya Puri avoids e-mail, doesn’t carry a mobile phone or wear a watch, and goes home for lunch most days. That hasn’t stopped his HDFC Bank from becoming the country’s second-biggest lender by market value, after government-owned State Bank of India. “Banking is a simple business,” says Puri, 61, in an interview in his sparsely decorated office at the bank’s Mumbai headquarters, sunlight streaming onto the bare tiled floors. “You be too aggressive, it will come back and bite you on your backside.”
Led by Puri, who holds the title of managing director, the bank has posted profit increases of at least 30 percent in each of the past 10 years. Puri built the credit-card and consumer lending businesses into India’s largest while steering clear of losses incurred by rivals such as ICICI Bank, also based in Mumbai, and Citigroup, India’s biggest foreign bank by assets. Now he is expanding in investment banking, and wants to be among the top two or three players advising on mergers and acquisitions, project finance, and debt sales within three years.
With 3.15 trillion rupees in assets ($61.8 billion), the bank has been adding almost 2 million customers a year, according to Puri, and has more than doubled lending to consumers since 2008. Puri, who keeps an autographed copy of Michael Lewis’s The Big Short in his office, has a reputation for prudence. HDFC Bank’s bad-loan ratio was 0.2 percent in the quarter ended in September, a fourth of ICICI Bank’s and one-tenth that of State Bank. “The biggest quality of HDFC Bank is its ability to control itself,” says Samir Arora, founder of Helios Capital Management, a Singapore-based hedge fund whose top holding is HDFC. The bank “doesn’t feel left behind in the good times because it does so much better in the bad times.”
A graduate of Punjab University and a chartered accountant, Puri worked at Citigroup for almost 20 years, rising to chief executive officer of Citibank Malaysia. He joined HDFC Bank as managing director when it was founded in 1994. The bank was launched by Housing Development Finance Corp., India’s biggest private mortgage lender, which remains its largest shareholder, with more than 23 percent, and sells about a quarter of its mortgages through the bank.
A delegator who usually leaves the office at 5:30 p.m., Puri says he reads about 50 reports a day from senior managers. In February 2008, on a weekend when HDFC Bank was in talks to acquire Centurion Bank of Punjab, Puri was relaxing at his farmhouse on the outskirts of Mumbai while his top brass was putting the finishing touches on India’s largest banking deal. “I have a very competent management team,” says Puri. “We agree on what needs to be done, and they do it, and they only call me if there’s a problem.” If they call after hours, they’d “better be very, very sure” it is something crucial, he says.
The next few years may test Puri’s laid-back style. Higher borrowing costs and a slowdown in economic growth as India’s central bank ratchets up rates to curb inflation could lead to an increase in bad loans. And HDFC Bank may face more competition in consumer lending: After a seven-year hiatus, India’s central bank may issue new banking licenses. Meanwhile, Standard Chartered, HSBC, and Citigroup, the foreign banks with the biggest presence in India, continue to add branches as they target middle- and high-income consumers.
Even so, foreign banks have a combined market share of only 4.9 percent of lending and 4.4 percent of deposits, according to data from the Reserve Bank of India. HSBC, the second-largest foreign bank in India by number of branches, has had more than five years of losses in its local retail-lending business in the country and is now operating at “virtually break-even,” HSBC’s India CEO Stuart Davis said in August. Puri says he’s not worried about competition from any new banks the government may allow. “Will they make a difference to the banking landscape for the next 10 years with new bank licenses? The answer is no,” he says. “First they have to get a license. Then they have to set up basic infrastructure. Then they have to start the business. Then they have to decide which business they’re going to grow in. Then they have to spend the money to grow in that business.” Investors including Helios Capital’s Arora say even existing banks aren’t much of a threat. “There’s no competition from any of the private-sector banks,” Arora says.
As for global ambitions, Puri says he doesn’t have any. After opening branches in Bahrain and Hong Kong to serve Indians working abroad and companies in need of trade financing, he doesn’t intend to expand further. He says he doesn’t want to take on so much risk that the depositors whose money he’s using won’t be able to sleep at night. “If you go international today, you’re the one taking higher risks,” he says. “To try and become a major bank is very difficult with the new regulations. You’re getting a lower return, and you have a much better market here, so why would we go?”