India’s HDFC Bank sees signs of revival in rural areas

Pedestrians walks past signage for Housing Development Finance Corp. (HDFC) outside the company's offices in Mumbai, India, on Monday, Feb. 17, 2014. Photographer: Vivek Prakash/BLOOMBERG

HDFC Bank Ltd., India’s most valuable lender by market capitalization, sees tentative signs of a revival in rural areas at a time when the wider economy is sputtering.

“The recent loan outreach programs underway in rural areas have given us the sense that the consumption in rural and semi-urban areas is turning more positive,” HDFC Bank Executive Director Kaizad Bharucha said in an interview last week. The rural and semi-urban sector, which accounts for at least half of India’s output, got 48% of the bank’s total loans as of end-September.

Prime Minister Narendra Modi’s government has unveiled several steps to boost the economy, which is growing at its weakest pace in more than six years, including a surprise $20 billion corporate tax cut. The Reserve Bank of India is expected to cut interest rates again this week, after Friday’s report that gross domestic product growth slowed to 4.5% in the September quarter.

For HDFC Bank, the weaker economy had led to a slowdown in loan growth, which eased to 15% in the September quarter from 23% a year earlier. But it remained healthy compared with the overall banking system which saw credit growth slowing to a two-year low just above 8%.

“As a bank we are well positioned to offset a slowdown in either the consumption or investment side as we are present across the spectrum,” Bharucha said. “The demand for credit is not going away. It may just be subdued for a period of time,” he added.

He’s also cautiously optimistic about the outlook for corporate investment, based on the bank’s soundings with Indian executives.

Muted loan growth has hardly dented the upward march in HDFC Bank’s shares, which are about 20% higher so far this year. Now valued at about $96 billion, the company trades around 26 times projected 12 month earnings. That’s almost three times more expensive than the Bloomberg World Banks Index and is the biggest valuation premium on record.

Meanwhile, non-bank lenders from Dewan Housing Finance Corp Ltd. to Reliance Capital Ltd. have been reeling under a 17-month credit crisis after Infrastructure Leasing & Financial Services Ltd. defaulted on its debt last year. In a further blow to confidence, the Securities and Exchange Board of India placed curbs on operations of Karvy Stock Broking Ltd. after finding evidence it misused client funds.

But Bharucha doesn’t see a wider industry problem.

“There is enough control over stockbrokers and depositories and a default in the segment will not have a systemic impact,” he said. The central bank “has ensured that there is adequate liquidity in the system and availability of credit is not a problem.”

Bloomberg

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In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

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  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
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