As part of RBI’s liberalisation of the Indian banking industry in 1994, HDFC was amongst the first institutions in the country to receive an “in principle” approval from the Reserve Bank of India to set up a bank in the private sector. Incorporated in August 1994 in the name of HDFC Bank Limited, it commenced operations as a Scheduled Commercial Bank in January 1995. HDFC Bank is a publicly held banking company engaged in providing a wide range of banking and financial services including commercial banking and treasury operations. It has an enviable network of over 2,200 branches and 7,100 ATMs spread across 1,000 cities. The bank has two subsidiary companies, namely HDFC Securities Ltd and HDB Financial Services Ltd.
The bank has three primary business segments, namely, retail banking, wholesale banking and treasury operations. The retail banking segment serves retail customers through a branch network and other delivery channels by raising deposits from its customers and providing loans and advances to such customers. The wholesale banking segment provides loans, non-fund facilities and transaction services to corporate, public sector units, government bodies, financial institutions and medium sized enterprises. On the other hand, the treasury segment predominantly makes money on its investment portfolio. The loan portfolio of HDFC Bank constitutes of 54% and 46% of retail and corporate customers, respectively. Hence, it is largely a retail player in the banking sector, where it earns majority of its revenue and income from that space. The bank delivered a 24% YOY growth in the loan portfolio, while deposits grew by 17% YOY for Q4FY2019. Overall, net profit rose by 23% for the same quarter of the last fiscal. The current crisis in the NBFC sector has actually thrown open a window of opportunities for the bank as it has the best in class liability franchises. With capital constraints in the PSU banking space, private sector banks like HDFC Bank should increase their market share substantially and outperform in the financial and banking arena. Its shares are listed on the Bombay Stock Exchange Limited and National Stock Exchange of India Ltd, while its American Depository Shares (ADS) are listed on the New York Stock Exchange (NYSE) and the Banks Global Depository Receipts (GDRs) are listed on Luxembourg Stock Exchange. Most analysts and mutual fund managers have been covering the stock for a very long time and have included it in their portfolio. They expect the stock price to appreciate from the present levels of Rs 2,400 to a target price of Rs 2,825 in the next few months on the back of high ROE and superior asset quality metrics. A couple of fresh triggers like splitting of its equity share from Rs 2 to Rs 1 per share plus listing of HDB Financial Services in the next few months could propel the stock to new highs in the near future. HDFC Bank is a solid investment buy and a must have in one’s portfolio.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.