ValuePickr Forum

HDFC Bank- we understand your world

Can you pls elaborate how it is not fair to HDFC Bank? They get their fee income and later on seems like they buyback relatively stable retail home loans, is that at a premium?
What concerns me is why there is this need to buyback the loans when HDFC Ltd is the actual housing loan entity and should own all such loans?

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Some home loans can be classified as priority sector lending.RBI mandates that all banks have enough loans in priority sector.This arrangement helps hdfc bank complete its product portfolio also fulfil some of its priority lending requirements.

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Look at it like this,
When you are the best bank in the country in almost all the products you are into and When you are the one who is acquiring the customer, taking the effort in processing, disbursing, managing liability to maintain that portfolio on book and doing collections.

Why do you even want to involve HDFC ltd ? It’s like just because HDFC ltd is a parent they are providing their credit underwriting policy and getting cool risk adjusted spread.

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This agreement betwn hdfc and hdfc bank is quite old…i think almost since inception of the bank…it was a carefully thought out agreement worked out betwn Deepak Parekh and Aditya Puri…this was done largely to ensure there is no conflict of interest betwn the two entities and is also legally complied. Therefore, this is well known to all major shareholders for decades and this is nothing new.

Disc - Invested

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From today’s statement of RBI Gov



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Had written to Investor relation on this query and got the following document in response. Point 6 states following

To consider, and if thought fit, to pass the following resolution as an Ordinary Resolution for approval of Related Party Transactions with HDFC Bank Limited, an associate company of the Corporation:
> “RESOLVED THAT pursuant to Regulation 23 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred to as “Listing Regulations”), Section 188 of the Companies Act, 2013 read with the Companies (Meetings of Board and its Powers), Rules, 2014 and any other applicable provisions, including any amendment, modification, variation or re-enactment thereof,the Members of the Corporation do hereby ratify as also accord further approval to the Board of Directors of the Corporation (hereinafter referred to as the “Board” which term shall be deemed to include any committee(s) constituted/to be constituted by the
> Board, from time to time, to exercise its powers conferred by this resolution), for carrying out and/or continuing with arrangements and transactions (whether individual transaction or transactions taken together or series of transactions or otherwise) during
> the period from April 1, 2020 till the conclusion of the 44th Annual General Meeting of the Corporation, with HDFC Bank Limited (“HDFC Bank”),
> being a related party, whether by way of renewal(s) or extension(s) or modification(s) of earlier arrangements/ transactions or otherwise including the banking transactions, transactions for (i) sourcing of home loans for the Corporation by HDFC Bank against the consideration of the commission agreed upon or as may be mutually agreed upon from time to time, (ii) assignment/securitisation of such percentage of home loan sourced by HDFC Bank or others, agreed upon or as may be agreed from time to time mutually between the Corporation and HDFC Bank, (iii) servicing of home loans assigned/ securitised against the consideration agreed upon or as may be mutually agreed upon, from time to time and (iv) any other transactions including those as may be disclosed in the notes forming part of the financial statements for the relevant period,
> notwithstanding the fact that all these transactions in aggregate, may exceed the limits prescribed under the Listing Regulations or any other materiality threshold as may be applicable, from time to time.”
agm-notice-2019-20 with explanatory statement.pdf (395.7 KB)


PFA the results of HDFC Bank. I guess this was the last result under Mr Puri. A beautiful corporate run comes to an end.

Aside decent results.

HDFC Bank Q2 FY21.pdf (6.1 MB)


Disc: Invested

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Must watch interview for any shareholder
All about passion ,culture, vision and future planning for making World class institution


I don’t have paid access to this article. Posted here as FYI
Would it impact HDFC Bank and HDB Fin?

Disc - holding

This is a very important news in the context of this thread. So surprised that there is no mention yet.

RBI issued an order dated December 2, 2020, to HDFC Bank, in which it has asked the bank to temporarily halt sourcing new credit cards and stop the launch of its digital business-generating activities planned under Digital 2.0 and other proposed business generating IT applications. The RBI action comes after the central bank on November 23 sought an explanation from HDFC Bank after its digital services were disrupted from the evening of November 21 till November 22 morning - for over 12 hours. “The above measures shall be considered for lifting (the restrictions) upon satisfactory compliance with the major critical observations as identified by the RBI,” it added.
HDFC Bank said that the reason behind the disruption in its mobile and internet banking services in December was high transaction volumes. “One would have normally envisaged that from the base level, you normally size up for about four to five times the capacity,” said Sashidhar Jagdishan, executive director, HDFC Bank. He added that the volumes had gone beyond five times the bank’s estimation. “So, it’s more of a capacity issue,” he said.
The bank, in its filing to the exchanges, said it has taken “several measures to fortify its IT systems” over the last two years and will continue to work to “swiftly to close out the balance and would continue to engage with the regulator in this regard" …The Bank has always endeavoured to provide seamless digital banking services to its customers and has been taking conscious, concrete steps to remedy the recent outages on its digital banking channels,” it added.


HDFC Bank has had poor digital CX for years, and it seems there has been complacency about this.
This restriction is a wake-up call, probably good for investors in the long run.
And this is the first key issue facing the new MD and given his reputation as a ‘hard taskmaster’ (I think that’s how a BQ article described him), this should hopefully be dealt with swiftly.

I doubt it is very difficult to make a bank application/website work properly.

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I fully agree about complacency and arrogance setting in gradually.

Following is my experience:

just after Diwali vacation of 2019, they had major breakdown. They refused to receive or issue cash till the system starts working properly. Even they refused to provide change of higher denomination notes to lower denomination till the time system goes operational.

When I visited nearby branch were somehow system was working slowly, they refused to help transaction as it is not the home branch. this is inspite of pleading for their help in the event of their system breakdown.
This was the scenario just after Diwali vacation and to a customer of more than 25 years with Classic account.


Fully agree, being one of their new customers, their UI and user experience is very poor.
For four months , my demat account was not being shown as linked to my bank account despite several transaction on my behalf and complaints too. Don’t think the situation is going to improve immediately as this can only be improved once they renegotiate their contract with the corresponding IT vendor and may have to spend a significant amount to do so. Also their system still uses a really old Java framework ( i’m from IT field).


RBI recently announced suspension of HDFC Bank’s issuances of credit cards until robust systems are in place. The country’s largest private bank being hit by regulatory matters is quite unusual. Be it what it may! But who stands to benefit from such a large windfall? Perhaps the second largest private bank? Or the third largest bank? It’s always the private sector. But nobody talks about the country’s largest bank! The State Bank of India (SBI)! I would assume the biggest beneficiary should naturally be SBI given its strong franchise. Was just looking at the valuation of the two banks. HDFC hitting a market cap of Rs. 8 lac crores, trading at a Price-to-Book of > 4. While SBI with a Market cap of about Rs. 2.5 lac crores. Too much discount for a PSU bank which is twice the size of the country’s largest private bank.
PB Ratio > 4 < 1 1:2

SBI being twice the size of HDFC Bank and being given a value (PB of ~1) effectively means that HDFC Bank is 8 times more expensive! Just because its private sector?? Recent times have shown so much more frauds in private sectors rather than public sectors…Could the sheen be out of private sector companies? Time will certainly tell.

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Do you mean to say all Banks should be priced same for price to book ratio irrespective of other factors like ROA, NPA, Growth in profits, Brand Value etc being different…


Of course not, but such a steep discount doesn’t seem to be warranted. SBI has double the size of the Balance Sheet, slightly higher % of NNPAs at 1.6% which has been trending lower over the last couple of quarters, quarterly profit run rate of about Rs. 5,000 - Rs. 6,000 crores and healthy ROE and ROAs (given its size). As far as Brand is concerned, SBI has a far higher brand reach in the country. Evident from the number of branches it has compared to all its peers. But brand being an intangible aspect, would be very difficult to attribute an undisputable value. (Well, its far more disputable as compared to tangible assets!)

‘The biggest difference between a Private bank and Public bank is the Primary objective of the bank. While private banks’ sole motive is profit maximization for the shareholders, public banks are mainly there for fulfilling social objectives of the Government, any return to shareholders is a by-product.’- That was the quote from the recently retired SBI chairman Rajnish kumar.

One can see this in different aspects of how these banks function and that is the reason why SBI makes much less profits compared to HDFC even after having double the balance sheet. Every time a bank fails in India, public banks are asked to bail it out (except the recent examples of Yes bank and LVB bank). Even in Yes bank, private banks moved out the very next week once the share price crossed 50.
We can always discuss if HDFC should be 8 times more expensive than SBI but I guess that depends on the person buying it in the market. Given the focus of HDFC & other private banks on shareholders’ returns and SBI & public banks working more as an instrument of Central governments’ social objectives, I would be surprised if that gap narrows down in the future.

We may always discuss the pros and cons of such policies of Private banks but the reality is, profit is what matters to the shareholders at the end of the day and that is why they are so expensive.


Above has been true since decades but still market has not valued it at par with well run Private banks. What makes you think this will change after decades?

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I am seeing a theme of our government beginning to sell more of its investments. Take a look at the BPCL episode for example. It’s great that the government is atleast considering privatization. I guess it sends a subtle message that the government is willing to look at its investments to be more professionally managed rather than to chase social objectives all the time.

I heard another market expert making a statement the other day “The objective of a government is to govern. The government has no business being in business.” Perhaps this may happen over a period of time.