Is HDFC Bank a staple in the portfolio or would you still stick with ICICI Bank and SBI?
This has always been the case and all good companies go through temporary periods of underperformance. There have been a host of issues ranging from a change in management to the implementation of an embargo by RBI, technological issues and this is good news for the group and investors. This creates a very large entity. Now, the size of the balance sheet would exceed Rs 80 lakh crore. SBI is around Rs 26-27 lakh crore. There will be a market share gain of 4.5 to 5%.
Plenty of cash can be freed up from the balance sheet and can be used to drive growth, especially at a time when interest rates may be tightening. We don’t know how it will turn out. There is a huge cross-sell opportunity. Management insisted that 70% of HDFC Ltd customers did not have a bank account. The 70% of bank customers do not have a mortgage. Thus, cross-selling and up-selling opportunities increase with a much stronger balance sheet.
You are an employee of HDFC Bank. This news must have come with a very different emotion for you?
Absoutely. I regret selling my ESOPs much earlier in my career. But like I said, it’s a long-term SIP stock for me personally and it’s been very strong governance-wise. Also, we were seeing signs of recovery and in the last few quarters the NII growth was very weak, the credit growth was there, but even the other banks matched it. It has always commanded a higher multiple for high growth, high NII growth and it has almost started to converge with ICICI and some of the other names.
It is very rare to see HDFC below three multiples before this news arrives, which we measure on a per book basis. I also think it will have a good impact on the other subsidiaries of the group, including insurance, asset management and securities and some of the unlisted businesses like HDB which has also been under pressure on asset quality in Covid reason. So overall, all of this will pay for itself over a much longer period of time.