A bank employee walks through the lobby of an HDFC Bank Ltd. branch in Mumbai (Photographer: Abhijit Bhatlekar/Bloomberg News)

Most-Valuable India Bank Makes Loan Grab as Rivals Curtailed

(Bloomberg) -- HDFC Bank Ltd., an Indian lender whose earnings have risen by at least 20 percent every year since 1998, is seeking to bolster its share of the nation’s corporate-loan market as surging bad debts hold back rivals.

The lowest nonperforming-loan ratio among the biggest Indian lenders and the highest market capitalization is allowing HDFC Bank to invest in operations and extend more credit, as counterparts including State Bank of India and ICICI Bank Ltd. combat soured debt. Overseas banks refocusing on their local markets is also presenting an opportunity for the Mumbai-based lender, whose profit-growth record is unmatched by any of the world’s 200 biggest lenders, according to data compiled by Bloomberg.

“Some of the existing players are going out and new players are taking a higher share,” said K. Balasubramanian, group head for corporate banking at HDFC Bank, which has a market capitalization of 3.2 trillion rupees ($47.6 billion). “We are focusing on expanding the client base.”

Private banks in Asia’s third-largest economy are extending loans faster than their state-run counterparts, which account for more than 70 percent of the total outstanding advances. Prime Minister Narendra Modi is seeking a revival in credit growth, which slumped to a 22-year low of 8.68 percent in June, as he seeks to maintain the fastest pace of expansion among the world’s major economies.

‘Positive Momentum’

Led by Managing Director Aditya Puri, HDFC Bank’s loan book grew by 23 percent in the 12 months through June 30 to 4.7 trillion rupees, exchange filings show. About 47 percent of that is classified as wholesale lending while the rest is loans to individuals.

Balasubramanian, who joined the bank in May, said he expects corporate lending -- part of the wholesale book -- to grow 20 percent in the year ending March 2017. He spent about two decades at Citigroup Inc. before leaving as managing director for its Indian corporate banking operations.

“There is positive momentum in the infrastructure space -- roads, railways and defense,” he said. “Over the next three to five years, credit demand in defense should see a strong rise.”

Goldman Upgrade

Gross bad loans made up 1.04 percent of HDFC Bank’s total advances as of June 30, compared with 6.94 percent for SBI, the largest public-sector lender, and 5.87 percent for ICICI, the biggest private lender by assets.

Most-Valuable India Bank Makes Loan Grab as Rivals Curtailed

The proportion of stressed assets in India’s banking system, which include restructured and soured loans, surged to a 16-year high of 11.5 percent as of March 31, Reserve Bank of India data show. The gross bad-loan ratio jumped to 7.6 percent, the highest in 13 years.

Among foreign lenders, Royal Bank of Scotland Group Plc is winding down its operations in India, while Standard Chartered Plc curtailed its exposure.

An uneven recovery in credit has impinged Modi’s efforts to revive investment growth. Loans grew 9.83 percent in the 12 months through Aug. 5, compared with an average of 13.7 percent over the past five years, RBI data show.

Goldman Sachs Group Inc. this month upgraded HDFC Bank’s shares to buy from neutral, saying that the lender stands to benefit from a strong retail franchise and a diversified lending mix. HDFC had a market share of about 5.8 percent in total domestic advances as of March 31. That compares with about 4.7 percent two years earlier.

Companies in the pharmaceuticals and automobiles sectors are “going to be active in terms of loan demand over the next few years driven by consolidation in their industry and changes in regulations,” Balasubramanian said.