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Where technology is a way of life

May 2, 2000

Its High on Technology:
HDFC Bank's 57 branches as of March 1999 are all computerised. Hence they are able to provide services like tele-banking, on-line banking and have around 105 ATMs after their marger with Times Bank. Since March they have added many new branches and ATMs.

As it was one of the first few banks to introduce banking on the net, it has managed to muster up a large number of on-line banking customers. It is also planning to set up off-site ATMs. They have tied up with credit card companies for allowing the cardholders of these companies to use their branch network. During FY99 they became members of Visa International Plus and Master Card International ATM Network. They also tied up with American express to provide ATM cash access to its card members. It has also recently launched a debit card in a tie-up with Visa International. All these activities will help HDFC Bank spruce up its fee income in future.

Continues to concentrate on retail deposits
HDFC Bank has always concentrated on increasing its retail deposits to keep its costs low. Its current and saving deposits contributed to 45.6% of total deposits as on March'99. HDFC Bank plans to aggressively expand its branch network, hence it will be in a position to reach a higher number of retail customers. This will help it increase its base not only for deposits but also give it a platform to sell its retail banking products like loans against shares, consumer loans etc.

Merger with Times Bank favourable
As part of its aggressive growth strategy HDFC Bank has acquired Times Bank at a ratio of 1:5.75. This is because of HDFC Bank's higher profitability and larger asset base. After this merger HDFC Bank will gain by adding 38 more branches to its network and 48 ATMs across 22 cities. As there are very few overlaps in their branches, HDFC Bank will benefit from this higher branch network.

The negative factor in this merger is Times Bank's higher NPLs. As of March'99 Times Bank's net NPL was 3.01% and HDFC Bank's net NPLs was only 0.73%. Also another concern was Times Bank's deposit rates which are higher than HDFC Bank's deposit rates, however these will eventually come down in line with HDFC Bank.

Encouraging 3QFY2000 results In continuing with its good performance HDFC Bank has reported a net profit of Rs 282 m for the 3QFY2000, a growth of 55% over the corresponding period of the previous year. Its interest income went up from Rs 992 m to Rs 1,600 m for the 3QFY2000 a growth of 61%, while interest costs grew by 44%. Its operating margins improved slightly from 27.6% in the 3QFY1999 to 28.2% for the 3QFY2000.

(Rs m) 3QFY2000 3QFY1999 Change
Interest Income 1,600.4 992.4 61.3%
Other Operating Income 348.0 153.9 126.1%
Operating expenses 488.5 197.0 148.0%
Interest Expenses 910.0 632.9 43.8%
Depreciation 79.4 31.1 155.3%
Profit before Tax 470.5 285.3 64.9%
Tax 188.8 103.4 82.6%
Profit after Tax 281.7 181.9 54.9%
Net profit margin 14.5% 15.9%  

Comparison with other banks
On a comparison with its peer banks HDFC Bank looks attractive on many parameters, especially in comparison to the public sector banks, as it is a lean organisation hence its operating profit per employee and assets per employee is higher than the public sector banks and is also more efficient as can be seen from its operating profit to assets and its operating expenses to total income.

Future looks bright
As HDFC is on a strong growth spree, they could have the risk of higher NPLs like they did in the Times Bank merger, however as they have a prudent policy of writing off their bad debts this should not be a factor to be concerned about too much as they have been very careful about quality of lending and currently enjoy very low level of NPLs. Also though its operating expenses will go up in the next couple of years due to higher branch expansion in the long run due to higher volumes of business the expenses ratios will again be on track.


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