HDFC Bank flies on success mantra

So what is the secret sauce of a bank that has sky-rocketed from being a penny stock when it was launched in 1994 to a bellwether and which now features in Forbes Asia's 'fab 50' list of companies for its ability to weather the slowdown?

"HDFC Bank has built its consistent growth through selective lending, diversified exposure and focus on low-cost savings deposits", Sukthankar said. It has also shunned risky, exotic products and is picky about its borrowers.

"We live in a volatile world", said Sukthankar, who has worked at the bank since its inception after moving from Citigroup Inc. We don't chase higher yields and run into higher risks.

HDFC Bank is choosy about issuing credit cards, offering them mostly to existing customers to avoid delinquency, and it has steered clear of lending for two-wheeler purchases in some regions - risk-averse strategies that ICICI now emulates.

The lender expects non-performing loans to remain within its five-year average of 1.3-1.5 percent.

COMPETITION LOOMS

For all its success, HDFC Bank faces stiff competition in its stronghold retail segment, where the default rate is low, as several lenders including ICICI, SBI and IndusInd Bank Ltd have rushed to expand into home and auto loans.

With the central bank planning to issue new banking licences, the landscape could become even more competitive for HDFC Bank, putting pressure on its margins, analysts say.

"Its net interest margins - a key gauge of bank profitability - now stand at more than 4 percent, one of the sector's highest.

That would mean tougher competition for customer acquisition as well as pricing", said A.S.V. Krishnan, an analyst at Ambit Capital, which rates HDFC Bank a 'sell' due to its high valuation.

The gloomy economic climate also poses a threat.

... contd.

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