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HDFC Bank to grow 30% if economy expands at 7%: Aditya Puri

Aditya Puri would certainly be a happy man after the Reserve Bank of India raised the age limit for private bank chiefs to retire to 70. But more so, investors would be the happiest as there has been no denying that HDFC Bank  could report 25 percent growth for the past 80 quarters, since its existence, largely due to its architect.

Discussing the RBI move, HDFC Bank Managing Director Aditya Puri said that probably the central bank has realised that even bankers can work till 70.

The RBI’s move is in line with the new Companies Act, which allows all directors and managing directors to serve up to 70 years.

On Foreign Investment Promotion Board’s (FIPB) insistence that HDFC ’s stake in the bank is a foreign investment, Puri said he expects clarity on the matter in a month or so.

While the bank has grown at 25 percent for the past around 76 quarters, growth in the last four quarters has come down towards 20 percent. However, Puri is affirmative that he will get back to 25 percent and even 30 percent growth when the economy gets back to 6-7 percent growth, which he expects by FY16.

He said it is dangerous for the banks to grow fast when the economy is slowing as it can result in higher non-performing loans.

Below is the transcript of Aditya Puri’s interview with CNBC-TV18’s Latha Venkatesh

Q: The RBI has raised the upper age limit for retirement for the managing directors to 70 years. First up why did they do it? I have got three options, you tell me which. One, Raghuram Rajan knows that banking talent is scarce and whatever is there should be conserved; B, Mr Aditya Puri has clout and C, a bit of both?

A: You can eliminate B, they probably did it because they realised that if the rest of the world is not senile till 70 the bankers could probably keep their sense till then.

Q: This infra bonds gave us the idea that HDFC could issue a lot of infra bonds if it became a bank like IDFC is expected to. You have said clearly that infra bonds makes it attractive. What should we assume, how many years must we wait before this giant can become one and actually become the biggest player in the country, which it needs to be?

A: This is not a new issue. We have always said that an HDFC, HDFC Bank merger makes sense from a business point of view. Are they regulatory constraints, yes. With the infra bond we have made progress but we haven’t solved all the problems. So a few more regulatory constraints on the static balance sheet of HDFC if that was exempted you would see it fast. At the moment it is not on the table.

Q: One of the fears of the investors that now that you are going to be there for another six years for sure actually the merger gets postponed because there are too many good men in the organisation and therefore merging probably somebody will not be around. Therefore actually extension of your tenure is seen as postponement of merger, good analysis?

A: Very bad analysis. Let us say there is place for all and even the place at the top – no issue. That is the least of the issues. We are very clear if it comes about how it will be run. Unfortunately we need some help and the day we get the help I assure you the hypothesis that you have drawn out that it was wrong will be proven.

Q: Do you definitely need changes in the law before the merger happens or do you think that you will have sufficient number of infra bonds?

A: We don’t need changes in the law, we just need RBI to give a few concessions.

Q: If IDFC happens and you know for a fact that IDFC got these concessions ….

A: Then we will look at it. If it makes sense we will do it.

Q: Let me come to another issue which of course the market wants to repeatedly hear about – the FIPB. Have you any assurance that they will grandfather the clause and allow you to have more FII investments, not treat HDFC as a foreign account. What is the way forward?

A: This is the new India now. You have to think differently. Grandfathering is only one of the options. If you want to promote FII and FDI into the country the plethora of rules that we have is so confusing and I hope somebody understands the logic behind. If FII is coming into our country why should there be any limit at all? They are investing money here under our rules and regulations without asking for management control, I frankly think there should be no limitations.

The little that I have discussed with various parties who would be involved in this decision seem to suggest that the general feeling is that we should have a far more liberal regime so that money comes in both FII and FDI. So, I am very hopeful that the end result that we want would be achieved whether it is through grandfathering, whether it is through a liberalisation of the policy I really don’t know.

Q: Do you think you will know one way or the other in a month, in two months?

A: I would say within that timeframe yes.

Q: What if it was negative?

A: I will do a simultaneous issue, one local, one overseas.

Q: Do you need capital now?

A: We don’t need it now but if the rate of growth increases and now Basel III is imposing more and more conditions we would may be need it in 9-12 months or 9-18 months depending upon the rate of growth. So, there is no immediate need. Our total capital adequacy is 16 percent plus and tier-I is 11 percent plus. So, we will need it at some stage, we are just being careful.


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