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HDFC Bank Company update

January 30, 2014, Thursday, 06:04 GMT | 01:04 EST | 10:34 IST | 13:04 SGT
Contributed by Nirmal Bang

On the liability side, HDFC Bank appears to have a high concentration of deposits from ultra high net worth individuals (UHNIs). There are indications that the concentration is on the rise, with the bank focusing on getting a major share of deposits from this premium category. The available data are insufficient to arrive at a firm conclusion, but indicates the need for a further investigation to determine the bank’s vulnerability in case of a sudden shift in UHNIs’ investment preference. There is a possibility that this UNHI deposit concentration may not be unique to HDFC Bank, but may be the case with other new private sector banks as well.
Major portion of deposits from 14% of the customer base: In FY13, 14% of HDFC Bank’s retail customer base accounted for 71% of its retail deposits and 53% of total deposits. These 3.4mn (by customer ID) clients had deposits amounting to Rs1,574bn with HDFC Bank, and they are extremely important for the bank.
Top depositors’ concentration on the rise: The bank’s dependence on this top segment of depositors has been on the rise; in FY08, 11.8% (0.99mn customer IDs) of retail customers accounted for 58% of the bank’s retail deposits and 34.8% of total deposits. The bank acknowledged that it has been implementing a strategy over the years, which focuses on approaching UHNIs and getting more deposits from them.
Management views UNHI deposit concentration as a successful strategy: The senior management does not believe that the bank faces UNHI deposit concentration risk, but in fact views the growing contribution from this category as a successful strategy of client acquisition and penetration by making HDFC Bank the preferred bank for their savings.
UNHI deposit concentration can pose a problem in unforeseen circumstances: In normal times, the deposit concentration may not pose a problem and instead prove to be profitable, but in unforeseen circumstances the sudden withdrawal of funds by this category of depositors can pose a serious challenge and therefore we view this as an un-quantified risk.