Indian Banks

The country’s second-largest private sector lender, HDFC Bank, today increased fixed deposit (FD) rates across nine maturities by 25-150 basis points (bps)—the sharpest and widest increase by any bank so far.

The rate hike comes three weeks after the third-quarter monetary policy review of the Reserve Bank of India (RBI), when the central bank increased the cash Reserve ratio by 75 bps.

“Our rates were lower than some banks, especially for the long term. Now, in a scenario where rates are likely to go up for the system as a whole, we have decided to align our rates with the market to be as competitive as anyone else,” said Ashish Parthasarthy, treasurer, HDFC Bank.

The bank’s three FD slabs, with maturity between three and 10 years will now earn 7.5 per cent interest against the earlier 6 per cent.

Interest rate for term deposits between two and three years has been raised by 100 bps to 7 per cent from 6 per cent rate.

At the same time, the rate for FDs with a tenor of 366 days to two years has been increased by 50 bps to 6.5 per cent, except for the one year 16 days maturity offering 6.75 per cent rate, according to the bank’s website.

Another important reason for rate hike is the declining liquidity position as reported by several banks, including the country’s biggest lender, State Bank of India (SBI). A senior SBI executive said the extent of excess resources with the bank had declined substantially due to an increase in credit offtake. Till December-end, the bank had excess funds of Rs 75,000 crore.

“Going forward, competition among banks for resources will intensify. The interest rate on deposits will move up. The first one to move will be private sector banks,” he added.

The RBI move to hike the percentage of funds banks are required to hold as reserves with the central bank is expected to take out Rs 36,000 crore from the banking system.

The increase in CRR comes in two tranches. The first hike of 50 bps to 5.5 per cent has become effective from February 13. While, the second increase of 25 bps will apply from the fortnight beginning February 27. Last week, IDBI Bank raised deposit rates by 0.25 per cent across various maturities and also introduced a new 500-day slab with offering a rate of 7 per cent.

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HDFC Bank has rolled out its electronic payment gateway for the Golden Temple, Amritsar.

Talking to Business Standard, HDFC Bank Country Head (Operations) A Rajan said this would also facilitate the donors across the world to make online donations for 37 religious institutions across the country.

He apprised that the bank maintained 130 accounts of institutions of various religions and had signed agreements with 37 institutions for making online payments through the portal of the bank.

Considering it to be a philanthropic initiative of the bank, Rajan said, “We would facilitate 1.5 crore customers of the bank through this technology and even those who donot maintain account with the bank can make donations through credit card.”

He added that there was no restriction of the minimum and maximum amount of donation.

Acknowledging it to be a win-win situation for customers and the bank, he said that HDFC Bank would be able to mobilise additional funds and customers would get a hassle-free and transparent means of donation.

He said that some religious units were not allowed to maintain account with non-government banks, so the bank with the help of Real Time Gross Sharing (RTGS) transferred funds into their account.

He said it would help the non-resident Indians (NRIs) in a big way to make their donations. The bank, according to him, had incorporated the religious institutions of various faiths, keeping in line with the ethnic and religious diversity of India.

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At a time when interest rates are expected to harden, the country’s largest housing finance company, HDFC, has introduced a monthly deposit plan which offers a floating rate of interest. The rate of interest is linked to the benchmark rate and will be reset at the beginning of each calendar quarter.

“Customers have an option of fixed and floating rates on the loan side. It gives them an option on the deposit side as well. With interest rates expected to rise, this also allows customers to eliminate interest rate risk,” said Conrad D’Souza, senior general manager at HDFC.

Under the new scheme, depositors can select any period between 24 and 60 months and the monthly installment amount ranging from Rs 2,000 to Rs 50,000.

The current interest rates for the plan, effective from February 3, are 7 per cent, 7.25 per cent, 7.75 per cent for 24-35 months, 36-59 months and 60 months deposits, respectively.

The country’s largest public sector lender State bank of India (SBI) offers an interest rate of 6.75 per cent for its 24-36 months fixed deposits (FDs). Its FDs of 3-5 years attract an interest rate of 7 per cent, while 5-8 years FDs attract a rate of 7.25 per cent.

A number of banks such as SBI, Bank of India and Union Bank of India had introduced floating-rate deposits. But most of them have since withdrawn the schemes due to poor customer response. Bank of India used to offer this scheme as recently as September 2009.

“This is the right cycle for investing in floating rate products since interest rates are likely to rise. There is likely to be an appetite for this product among better informed investors,” said Anil Rego, a Bangalore-based financial planner.

A few banks have already started raising deposit rates on select maturities, signalling an imminent turn in the interest rate cycle. At the beginning of the month, public sector lender Union Bank of India set the ball rolling by raising the interest rate on one-year to two-year deposits by 75 basis points.

ICICI Bank has also raised the interest rate on deposits maturing in 270 days to less than one year by 25 basis points to 5.75 per cent for deposits of Rs 15 lakh to Rs 1 crore from January 8.

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The investment banking division of HDFC Bank has reached the breakeven point within a year of starting operations. The division sees opportunities in project finance as well as debt and private equity syndication, according to a senior executive.

The bank plans to double the size of its investment banking team to 25 over the next year, according to NS Kishore Kumar, country head, investment banking. “We have a strong corporate banking franchise that we will look to leverage. We want to position ourselves as a specialist in project finance and infrastructure,” he added.

The bank did rupee and foreign debt syndications as well as sell-downs aggregating to Rs 3,600 crore last year and is looking at Rs 10,000 crore worth of debt syndications next year.

HDFC Bank does not have a large project finance book and is looking to grow this business. “We used to play at the short end of the spectrum. Now, we are looking to lend long-term for good projects,” said Kumar. This move marks a change in strategy for the bank, which is known to be a conservative lender averse to long-term exposures. “We recognise that we cannot be in this business without taking more exposures,” Kumar said.

Other large private sector lenders are also focusing more on project finance. The country’s largest private sector lender, ICICI Bank, already has a strong presence in this space due to its development finance institution legacy. Axis Bank, which has a large infrastructure book, recently set up a 50-strong infrastructure group.

“The infrastructure space will need Rs 200,000 crore debt in the next three years and so we see huge potential in this area,” Kumar said.

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HDFC Bank’s board today decided to give a three-year extension to Managing Director Aditya Puri. His term was to end in March. Puri has been with the bank since its inception. HDFC Bank said the appointment was subject to shareholder and regulatory approvals.

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HDFC Bank Ltd. is a commercial bank of India, incorporated in August 1994, after the Reserve Bank of India allowed establishing private sector banks. The Bank was promoted by the Housing Development Finance Corporation, a premier housing finance company (set up in 1977) of India. HDFC Bank has 1,412 branches and over 3,295 ATMs, in 528 cities in India, and all branches of the bank are linked on an online real-time basis. As of September 30, 2008 the bank had total assets of INR 1006.82 billion.For the fiscal year 2008-09, the bank has reported net profit of Rs.2,244.9 crore, up 41% from the previous fiscal. Total annual earnings of the bank increased by 58% reaching at Rs.19,622.8 crore in 2008-09

In 2008 HDFC Bank acquired Centurion Bank of Punjab taking its total branches to more than 1,000. Though, the official license was given to Centurion Bank of Punjab branches, to continue working as HDFC Bank branches, on May 23, 2008

Housing Development Finance Corporation Limited, more popularly known as HDFC Bank Ltd, was established in the year 1994, as a part of the liberalization of the Indian Banking Industry by Reserve Bank of India (RBI). It was one of the first banks to receive an ‘in principle’ approval from RBI, for setting up a bank in the private sector. The bank was incorporated with the name ‘HDFC Bank Limited’, with its registered office in Mumbai. The following year, it started its operations as a Scheduled Commercial Bank.

Amalgamations
In 2002, HDFC Bank witnessed its merger with Times Bank Limited (a private sector bank promoted by Bennett, Coleman & Co. / Times Group). With this, HDFC and Times became the first two private banks in the New Generation Private Sector Banks to have gone through a merger. In 2008, RBI approved the amalgamation of Centurion Bank of Punjab with HDFC Bank. With this, the Deposits of the merged entity became Rs. 1,22,000 crore, while the Advances were Rs. 89,000 crore and Balance Sheet size was Rs. 1,63,000 crore.

Tech-Savvy
HDFC Bank has always prided itself on a highly automated environment, be it in terms of information technology or communication systems. All the braches of the bank boast of online connectivity with the other, ensuring speedy funds transfer for the clients. At the same time, the bank’s branch network and Automated Teller Machines (ATMs) allow multi-branch access to retail clients. The bank makes use of its up-to-date technology, along with market position and expertise, to create a competitive advantage and build market share.

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