Bet You Never Thought HDFC Bank Could Lose its Head

Aug 17, 2018

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Tanushree Banerjee, Co-Head of Research

    HDFC Bank's chief risk manager Paresh Sukthankar led a small team for Times Bank merger due diligence, quietly and informally. Five of them would travel together in a car and get off somewhere near the BMC headquarters, and then walk down to the Times Bank office at the Times of India building. After getting off the car, they would walk down separately, pretending not to know each other. Anyway, it was hardly a couple of minutes' walk and no one would be dressed like a banker, in striped shirts and grey suits. Even the driver didn't know where they were heading.

This interesting anecdote from Tamal Bandopadhyay's book, A Bank for the Buck, says a lot about early days of HDFC Bank. But also about how instrumental was Paresh Sukthankar in framing the bank's risk policies right from the start.

With MD Aditya Puri months away from retirement, Deputy MD Sukthankar's exit leaves HDFC Bank vulnerable. At least temporarily. It joins private sector peers ICICI and Axis and at least 10 public sector banks in the search for a capable 'captain of the ship'.

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But there is a difference.

The smaller public-sector banks do not have any systemic importance. On the other hand, the top three private sector banks HDFC, ICICI and Axis control...

  • Half of the retail credit exposure of Indian banks

    A third of the combined retail credit exposure of banks and NBFCs... and

    Almost a fifth of the Sensex weightage

What India's 'Headless' Private Sector Banks Control...

(%) At the end of July 2018 Share of Retail Credit
Sensex Weightage Banks Banks + NBFCs
HDFC Bank 10.4 20.7 13.8
ICICI Bank 5.4 16.6 11.2
Axis Bank 3.0 11.9 7.9
Combined share 18.8 49.2 32.9
Source: BSE, Companies

Needless to say, the vulnerability of these banks, until the next heads are appointed, is a matter of concern.

Each of these banks, has over the past two decades, been the poster boy of India's retail credit explosion. They have amongst the largest share of home loans, credit cards and auto loans. And were so far classified as systemically important banks and not systemically risky ones.

HDFC Bank, in particular, managed to sidestep every risk of slippage in loan quality, all these years. And was always rewarded for its performance, that was consistent to the point of being boring.

The change of guard at these banks, will not change their operating performance overnight. Neither will the ones with bad loans get rid of them sooner. Nor will the ones with solid risk controls fall into any NPA trap.

However, the market will look for reasons to value these banks differently, based on the approach of the new management.

And it could be extremely risky for investors to assume that these banks will never pose any risks to the sector or their portfolio.

Warm regards,

Tanushree Banerjee
Tanushree Banerjee (Research Analyst)
Editor, The 5 Minute WrapUp

PS: The last time we published Equitymaster's Secrets: The Biggest Lessons from Our Entire 20+ Years Investing Journey, over 20,000 readers claimed their copies. This time, we are printing only 1,000 copies of the updated version which includes a special message from Tanushree Banerjee. Claim your copy before we run out of stock!

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1 Responses to "Bet You Never Thought HDFC Bank Could Lose its Head"

bhagwati prasad saraf

Aug 17, 2018

I could realise that HDFC Bank is way downhill because it has too bureaucratic insensitive & harassing and is forcing out its customer

After 35 years of private banking with HDFC I suffered following three tortures by them to get convinced that they want me out

1. First I needed to reset my user id of NSDL app for demat a/c And only after more than ten emails by my RM & umpteen mails by me HDFC bank reset the user id that too after harassing me for over three months which forced me to close all my demat accounts with them

2. thereafter they changed the system for issue of new cheque book and insisted on registering cheque book request using debit card & pin which they could not deliver hiding behind courier issues Only after I complained to Mr. Puri that they issued they issued cheque book after two months I realised that they were doing this deliberately to utilise my high balance to boost their profitability by boosting CASA deposit by ensuring that I am unable to draw the balance in account REF complaint no. HBL=042-202-575

3. They are still harassing me to refund deposits made by deceased parents even after meeting their non ending demands of documents, affidavits & indemnity & court orders & personal presence again with deliberate intention to delay the refund and boost CASA deposit Complaint no. BR 047-485-885
After complaining to Mr. Puri they released 50% as my fathers share and are holding back balance 50% demanding succession certificate of my mother whereas as per RBI Guideline & their own citizen charter they cannot demand succession certificate where there is no other claimant & where there is no dispute
SoThis complaint is still unresolved

These desperate efforts to wrongly hold back deposit refund have convinced me that inside story of HDFC is worse than any other Private Bank and they are looting customers by high charges and appropriating deceased account holders deposits to illegally shore up their profits to cover their misdeeds just like PSU Banks

I therefore felt that the ship is sinking and keeping money with HDFC is unsafe & have withdrawn all deposits & shares in demat account and investments in MF except minimum balance in savings account

The resignations of Mr. Suthankar & Rumours of Mr Parekhs resignation & upcoming retirement of Mr. Purie prove that my hunch that the HDFC has already lost its Head & not that it would loose its head is likely to be true and that ship will sink soon

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