Housing Development Finance Corporation's (HDFC) net broking company has got its final nod by the board. This broking arm is to be set up jointly by HDFC, HDFC Bank and Chase Capital Partners. The broking company "HDFC Securities" would operate in internet trading business and traditional broking business and will apply for a broking license as soon as it is incorporated.
HDFC (FY99 Total Income Rs 17.5 bn) is the largest housing finance company in India with a 55% market share. HDFC operates 41 offices and has a field force of more than 42,000 commission agents who mobilize retail deposits. HDFC Bank, promoted by HDFC Ltd, provides a range of banking services including working capital finance, trade services, corporate finance and merchant banking. The bank also offers banking services via the Internet.
HDFC Securities will have an initial paid up capital of Rs 30 m. Both HDFC and HDFC Bank will hold 29.5% each in HDFC Securities, while Chase Capital Partners will hold 25% in the company. The balance 16% is to be held by the employees.
As internet trading is expected to pick up in a big way in India this new joint venture would enable the customers of HDFC and HDFC Bank besides others to be able to trade on the stock markets through this joint venture. HDFC Bank has been proactive on banking on the net, and was the first to offer many unique services through its website. With the setting up of HDFC Securities the trading needs of many of these customers could be satisfied.
There are currently 2 m internet users in India and this is growing at a very fast pace of 25%-30% per annum. As the potential for e-broking is very high many traditional brokers and banks have shown keen interest to enter into this market. In the case of banks they are using the internet not only to offer e-broking services but other products as well. Internet trading will eliminate the need of a local broker and result in execution of trades in a timely manner. It would also result in lower transaction cost to the investors. Though many e-broking sites would come up individual investors would prefer to do their trades through a trusted brand like HDFC.
The key to future growth in both the banking and finance sector will depend on their ability to use technology and the net to their best advantage. HDFC and HDFC Bank by introducing net trading are leveraging on the strong and trusted brand name of HDFC. As HDFC has one of the largest retail databases in India it can easily attract many customers for this broking venture by encashing on this database.
HDFC has always been a favorite of analysts and fund managers as it has an excellent asset quality and a good management. The recent increase in FII limit from 30% to 40% will be beneficial to HDFC as the FII limit of 30% was earlier exhausted for them.
HDFC Bank has been rated a 'BUY' mainly on account of its excellent management, strong promoters, efforts taken by them to control the non performing assets (NPAs), aggressive expansion plans and its internet ventures.
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