‘When there is such an elaborate and a strong process, one would have expected anyone to either place the issues so that they can be addressed or go to the regulator and probably tell them rather than creating a kind of uncertainty for the stakeholders.’

IMAGE: Sashidhar Jagdishan, MD and CEO, HDFC Bank. Photographs: Kind courtesy TERumel/wikipedia.org/Creative Commons

 

Sashidhar Jagdishan, managing director and chief executive officer, HDFC Bank, says there is no connection between Atanu Chakraborty’s abrupt resignation as part-time chairman of the bank and the lender’s action against some employees on account of gaps in requirements regarding taking on board clients at its DIFC branch in the United Arab Emirates.

In a video conversation with Manojit Saha and Subrata Panda/Business Standard, Jagdisha says the bank’s internal processes are robust enough to address issues that surface, and it remains focused on growth.

‘The scrutiny has not brought out any integrity issue or fraud’

Two days after Chakraborty resigned, HDFC Bank took action against a few employees. Is there a connection between the two?

They are coincidental.

The issue that has emanated in international business is principally a matter of technical gaps in our taking clients on board and the documentation matters there.

The scrutiny has not brought out any integrity issue or fraud.

There is a process we have … it has been there for several years … on how we address accountability.

The recommendations of the disciplinary committee are taken and given to the authority, which is one of the board committees, and the board committee takes action.

I don’t have the authority to decide on these actions.

Sadly, it was the timing.

There was a board meeting, before which there was a meeting of the nomination and remuneration committee.

Some (incomplete) discussion in the earlier meeting concluded that day. So that day action was taken.

‘We have remediated the design of all our products and services’

Does the UAE incident bring to light gaps that need addressing?

It does.

Every jurisdiction has different requirements on on-boarding and documentation, and on what kind of products we need to offer, their suitability and appropriateness, etc.

Advice from experts, including legal experts, has come in.

We have remediated the design of all our products and services.

We have put in new processes.

So we will rebuild the business in accordance with the new expectations of the regulations in West Asia.

Our niyat is right.

There could be some gap in implementation, but wherever there are issues, we will address them.

It’s a ghost that has come about’

Are there any other jurisdictions where such gaps were pointed out?

We have re-examined our policies, processes, and product designs, and are still re-examining them to recalibrate them to the new expectations of each of those jurisdictions.

Have you gauged the damage, if any, this incident has caused to the bank, and what has been the investor feedback?

If I have done something wrong, I know what we need to do to repair that.

But here, it’s a ghost that has come about.

It’s something all of us are baffled with, whether at management or board level.

We had requested Chakraborty to spell out the issues and we would have addressed them the way we have done all these years.

We have a wonderful and a robust process.

When there is such an elaborate and a strong process, one would have expected anyone to either place the issues so that they can be addressed — which was what the appeal of the board members was on March 18 — or go to the regulator and probably tell them rather than creating a kind of uncertainty for the stakeholders.

‘I am willing and raring to go’

Your term as MD & CEO ends in October. Are you willing to seek reappointment?

Yes, I am willing and raring to go.

But I respect the process that needs to be there, whether it’s the board process or the regulatory process.

Are there any gaps that need to be addressed after this episode?

All issues are before the management and the board.

Every issue is addressed with a time-bound plan.

If there are new issues that surface, either from Chakraborty or from some other channel, we will address them.

We are not saying that we need to be apologetic.

Our core job is to execute the business strategies of the bank in a manner that gives confidence to customers and other stakeholders.

We are just digesting the merger (with HDFC).

We had committed ourselves to a glide path.

We are on track.

So, once you get that kind of growth, I am sure customers will start getting the confidence back.

Last week, in a call with the media, you said there would be organisational restructuring. Can you throw some light on it?

I have done this in the past when we have reorganised the organisation or come up with restructuring.

The objective is to ensure that people are galvanised and there is a sharper focus in achieving our strategies.

This energises the whole organisation, and I plan to do that again.

But this time, there is a process in which I will have to discuss it within the organisation and also with the board before I announce it.

So this is nothing extraordinary.

If I want to achieve our strategic goals over the next three years, I would love to have this restructuring or reorganisation.

‘Our priority now is disciplined, profitable growth’

How do you plan to grow your loan books and also bring down your loan-deposit ratio (LDR)?

Is there an opportunity for us to grow?

Yes.

Do we have the ability to raise good-quality deposits?

Yes.

Do we have alternative funding options to support growth?

Yes.

Until now, we had not fully exercised those options because we were focused on bringing down the LDR.

However, with the recent monetary policy statement, there has been a slight shift in stance.

It now allows room to consider slightly longer-term, non-callable borrowings to enhance stability in the balance sheet.

This means that the LDR may remain where it is or even move up marginally.

But from a risk-management perspective, that is not a concern if long-term assets are funded by long-term, non-callable borrowings.

That creates a stable funding structure, which is what prudent risk management calls for.

When we talk about the LDR, we must recognise that business cycles will recur every three to five years.

Even though the regulator has taken the LDR off the table for the moment, our thinking is that we should not go overboard.

Even if we operate around current levels, over the medium term we would prefer to gradually bring it down.

That remains our approach.

From a strategic standpoint, however, the LDR is no longer our primary focus.

Our priority now is disciplined, profitable growth.

We have committed ourselves to growing faster than the system in FY27.

For FY26, we had indicated that we would grow broadly in line with the system, and based on performance up to December, that remains on track.

We are continuing to grow deposits broadly in line with our top line growth.

Over time, we would like deposit growth to outpace loan growth.

What we want to ensure is that we capture the growth opportunity and drive growth in earnings per share.

These are the two core objectives guiding us.

As growth continues and deposit growth gradually outpaces loan growth, you will see a smooth glide path where the LDR naturally trends down over time.

So the LDR going off the table for the moment gives you some comfort…

When you take over a massive machine that is already funded, your LDR will naturally move up.

There is no regulatory prescription for what the LDR should be.

It is not a global ratio, nor is it a Basel ratio or even a regulator-prescribed ratio.

Yet, from January 2024, you suddenly started hearing about the LDR.

No bank was given any specific target.

We reviewed our own books.

After the merger, our LDR had become the highest in our history.

We decided to pull down our loan growth rate.

We reduced it by roughly one-tenth and brought the LDR down accordingly.

From our perspective, our board needed comfort on the regulatory stance.

That comfort came when the (Reserve Bank of India) governor clearly articulated the same thought process in the monetary policy statement.

The emphasis now is that banks should maintain comfortable liquidity coverage ratio (LCR) levels.

The LCR and NSFR (net stable funding ratio) are the key metrics that determine the resilience of an organisation over the short and long term.

The minimum regulatory requirement for the LCR is 100 per cent.

At the same time, we do not want to be excessively high because that would mean inefficient use of funds.

A buffer of around 15 per cent above the minimum is quite comfortable.

We currently operate at roughly 115 per cent, give or take.

While the return on assets is improving, when will it top 2 per cent on a consistent basis?

To bring down the LDR from 110 per cent to below 100 per cent, we had to slow asset growth and accelerate deposit growth.

That did create some drag on the business.

To offset that impact, we focused on driving efficiencies to ensure that profitability was maintained.

Now that profitability is stable, the moment we resume top line growth — with bottom line growth keeping pace — earnings per share will naturally start improving.

Which are the levers you will tap for accelerating loan growth?

We do not want to pursue growth for the sake of growth.

Our objective is safe and profitable growth.

If consumption picks up, retail lending will grow.

If consumption does not pick up, there is still strong demand from micro, small, and medium enterprises, where growth continues to be 18 to 20 per cent, even on a larger base.

We will balance growth across segments.

Demand is not the issue.

The real challenge is striking the right balance among margins, risk, and growth — that is where the hard work lies.

Feature Presentation: Ashish Narsale/Rediff