HDFC Bank expects SME biz to grow fastest in 3-5 years

India’s largest private lender HDFC Bank Ltd plans to expand its small and medium enterprise (SME) banking platform by leveraging its distribution strength in non-urban markets and digital capabilities, top executives said.

At the India Financial Summit organised by Jefferies, HDFC Bank chief executive Sashidhar Jagdishan and chief financial officer Srinivasan Vaidyanathan told investors that the bank expects its SME business to be its fastest-growing segment over the next three to five years. Recent management changes were aimed to facilitate a more focussed approach towards execution in SMES, with Rahul Shukla driving growth in the segment.

“(The) bank is cognizant of the asset quality risks associated with this segment and hence will keep underwriting and collection teams tighter,” said a Jefferies report following the event.

In April, HDFC Bank announced an internal reorganization to form three distinct focus areas—business verticals, delivery channels, and technology. It named it Project Future— Ready. As part of the reorganization, Shukla is responsible for driving the commercial banking and rural verticals.

Jagdishan told analysts that while the bank had taken a cautious view over the past month and a half in the light of the Covid-19 pandemic and its impact on staff and clients, falling infection rates and widening vaccination are supporting the opening up of the bank. The field staff, including sales and collections, are more comfortable taking outbound responsibilities, he said.

“On the client side, the bank is largely comfortable as 85% of retail clients work with ‘AA and above’-rated corporates where job losses have been low, SMES were better prepared than in past, and larger corporates have better liquidity in their balance sheet,” Jagdishan was quoted as saying at the event.

Jefferies quoted the HDFC Bank management as saying that it continues to work with the Reserve Bank of India to resolve the digital banking issue, and at the same time, build more robust platforms.

“While tech outages are a normal business risk for any bank or financial company, (the) bank could have built a system to ensure faster recovery here,” the Jefferies report said.

On the fintech side, HDFC Bank plans to build partnerships with platforms that can help to bring together scale and seamless experience.

HDFC Bank was ordered to halt launching new digital banking initiatives and freeze credit card issuance until the lender addresses the lapses that led to a series of glitches. The RBI issued the December 2 order after outages on the internet and mobile banking systems over the past two years.