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Economy in ICU, says HDFC Bank Chief, but downplays covid risks to loan quality

"When the book is investment grade, there is cushion," said Puri.

, ET Bureau|
Last Updated: Mar 24, 2020, 08.33 AM IST
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Aditya Puri
Aditya Puri demands emergency measures from rbi and the government.
HDFC Bank chief executive Aditya Puri said the Indian economy is in an intensive care unit, requiring both the Reserve Bank of India (RBI) and the government to come up with emergency measures to prevent the economy from slipping into a coma.

The longest-serving bank chief in the country said his bank was in fine fettle and that speculation of a surge in bad loans from its unsecured loans portfolio was unrealistic as its exposure was only to the staff of top-rated companies which could navigate the current storm.

"Asset classification, according to me, they (RBI) don’t have a choice...Again on fiscal stimulus, I think they don’t have a choice," Puri, the MD of HDFC Bank, said. "RBI needs to come out with forbearance across the length and breadth of the industry. In fact, even the government should relax its fiscal space and spend, this is the need of the hour," he said.

The benchmark Indian stock index is at a multi-year low with private sector banks bearing the brunt. The Nifty private bank index underperformed the broader market — crashing 17% when the Nifty 50 index fell about 13%. Investors fear that the shuttering of offices and factories due to Covid-19 would slice away income and lead to job losses, denting payments.

HDFC Bank, a gold standard in the Indian stock market, fell 13% to Rs 770.50 on Monday. It has tumbled more than 40% from its peak.

"In the current pandemic-driven environment, we believe HDFC Bank carries certain idiosyncratic risks and unique management challenges," said Gautam Chhugani, analyst at Sanford C Bernstein — a brokerage firm.

"HDFC Bank’s portfolio is most exposed to unsecured consumer credit risk versus peer private banks. HDFC Bank’s subsidiary HDB Financial services also could pose challenges during this time, given the focus on weaker informal income segments," Bernstein said.

But Puri downplayed risks to loan quality due to the outbreak of Covid-19, and said the bank’s SME book was backed with additional collateral while the unsecured book was mostly to the salaried class working with companies rated A and above.

"When the book is investment grade, there is cushion," said Puri. "Most of these companies would have the wherewithal to take six months-to-one-year issues, whereby we would be willing, given the fact they have fundamentally sound financials, to sort their cash flow." the HDFC Bank MD added.

Puri also said a large part of bank’s book is to quality customers and the bank had tightened underwriting standards even before the coronavirus outbreak. He added that credit card spends will come down in the near term because of restrictions.

"In the last one month, we have gone through our entire portfolio with tooth comb. Both corporate and retail to see what is the impact. We have done all the sensitivity analysis and it is not looking worrisome for us. Will there be some (impact)Rs Absolutely, but we also have large amount of deposits invested in government securities, which will give us further cushion," he said.

Also, 75% of personal loans are to salaried customers of best corporates and are granular in nature. Most of the bank’s SME portfolio comprises borrowers, which have a self-funding component of 60-65%. The bank also takes additional collateral and follows stringent lending norms.

Puri, who along with key managerial staff is in self isolation, also emphasised that the succession planning was on track and the board would recommend a successor to RBI by the next month.
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