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)
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.
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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.
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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.
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.
HDFC Bank SBIN Size
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.
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?
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.
This statement (govt has no business to be in business) has unfortunately remained a statement only (until now at least). This same Government had forced ONGC to buy HPCL just to benefit from the large cash pile lying with the ONGC. While BPCL move is very good, I doubt Privatization will have a good impact on Public sector banks.
First of all, no body knows what lies under the carpet in those loan books (NPAs can be 2-3 times compared to what is shown right now) and the biggest issue is Credit rating. These banks right now get low cost CASA deposits and Debt from markets at Govt. bond yields because of Soverign credit ratings. I doubt if most of us will put our money in PNB, Canara bank etc. (even SBI for that matter) once they cease to be Government banks.
That is the reason RBI is coming up with guidelines of allowing corporates in Banks, because not many people want to own a Public sector bank loaded with Bad debts and Inefficient management. Hence, to buy a badly run Public sector bank with the expectation of future privatization is too risky an affair.
Kindly request everyone to not pollute this thread with SBI discussion. HDFC bank is a bang for buck company while SBI is government’s cleanup service which is forced to clean up after any and every kind of NPA mess.
The smallcase platform is integrated with India’s largest brokers, including Zerodha, HDFC Securities, Kotak Securities, 5Paisa and AxisDirect, to offer “smallcases” to their clients.
You are absolutely right Aditya. Being a private bank doesn’t ensure that everything is good with the bank. That is why you see the valuation difference between HDFC/ Kotak vs ICICI/IndusInd bank.
Lending is a very difficult business where you give the money to your customers (probably the only such business model in the world) and hence you have to be doubly sure whom are you lending it to. HDFC/Kotak have shown over last 25 years that they do the due diligence very well and they know whom they are lending to. Unfortunately, not many banks (including many private banks) are able to do that and that’s the moat people are chasing at such high valuations.
