#mergerchallenges

On August 10, Sashidhar Jagdishan, the MD & CEO of HDFC Bank, highlighted the challenges the bank has faced since its 2022 merger with parent company HDFC. During the bank's annual general meeting, Jagdishan acknowledged that the merger occurred during a tumultuous period for the financial market, which impacted the bank’s initial growth projections.

Jagdishan explained that the bank had planned its growth strategies under the assumption of a stable liquidity environment. However, this stability was disrupted when the Reserve Bank of India (RBI) began raising repo rates in May 2022 by 40 basis points, a response to soaring commodity prices following the Ukraine invasion. These rate hikes, totaling 250 basis points, increased deposit costs and affected HDFC Bank’s operations, particularly as it needed to secure deposits to support both its growth and the integration of HDFC’s assets.

He also noted a shift in consumer preferences towards mutual funds, equities, and real estate. Despite these changes, Jagdishan reaffirmed the bank's commitment to expanding its branch network, emphasizing that branch density in India is still lower compared to developed countries. He argued that increasing branch presence is crucial for enhancing deposit growth.

Jagdishan stressed the importance of maintaining a balance where deposit growth surpasses credit growth, even if it necessitates a temporary slowdown in credit expansion. This strategy, he suggested, positions the bank to benefit when the economic cycle turns favorable.

He defended the relevance of physical branches, citing their role in customer interaction and engagement. “Branches remain a key platform for customer engagement, and you’ll still find them in major financial hubs like New York and London,” Jagadisha remarked.