HDFC Bank CEO and MD Sashidhar Jagdishan shares his views on the mega-merger
The HDFC twins’ announcement drew a lot of attention yesterday.
“Elephants can dance, too,” argues Sashidhar Jagdishan, and the stock market has reacted positively.
“The proposed transaction ticks all the right boxes in terms of product completion, product leadership in home loans as well as other retail assets products, distribution strength across the country, and a customer base that can be leveraged to cross-sell a complete suite of financial products,” said Sashidhar Jagdishan, CEO and MD of HDFC Bank, who will also continue to be the chief executive of this mammoth merged entity. It adds value to all of the organisations’ stakeholders, including shareholders, employees, and customers.”
According to Sashidhar Jagdishan, the combination will enable them expand their footprint in priority sector financing. They will introduce cheap home loans to this sector in addition to leading micro enterprises. He also pointed out that because the interest rate regime has dropped drastically from 6-7 percent to 3-4 percent, the drag on SLR and CRR has vanished. Government securities yields are around 6%, while the cost of capital is 3-4%, resulting in a positive pull.
When they receive regulatory permissions, Jagdishan also stated that because mortgages account for only 11% of the bank’s loan book, compared to 30-40% for competitor banks, they will roll out these products across all branches and touchpoints. He stated that the banks’ net interest margin has traditionally been between 4-4.4 percent and that it may suddenly be lower. However, because it’s a bigger loan with a longer term, the operational costs are lower, resulting in fewer credit losses. On an apples-to-apples basis, they will be better in terms of net credit cost.
Finally, he stated that HDFC Bank will absorb all HDFC staff. In a word, the combined strength of both entities will allow for the creation of a massively profitable financial company.