Is HDFC Bank being priced in fully right now or do you feel there is more room for the stock to move based on this information?
In times like this, when a lot of the banking shares, HDFC Bank included, are under cloud because of the credit cost which may rise in the Covid pandemic, the succession issue was an uncertainty which was playing on the mind of the investors. The fact that a well known internal candidate has been approved by RBI certainly removed a great deal of uncertainty, which got heightened in the past few days with the sale of shares by Mr Aditya Puri.
There was a bit of a confusion as to why he would sell off 95% of his holdings and that has caused a bit of a flurry as far as the stock price was concerned. All those things are history now and going forward, HDFC Bank may continue on the same growth trajectory, given that it is a great institution, it has got a lot of internal talent and one of the senior most directors have been elevated to the post of CEO. There is continuity and at the same time, there will be continuation of a lot of policies of Mr Puri and the same systems will be carried forward.
One should not expect any major turbulence normally associated with CEO changes in the bank.
What kind of things would you want to focus on as far as the fundamentals of the stock are concerned?, What will be the things you will be watching out for from an investment standpoint?
The most important thing we are watching out for is the rise in NPAs, once the moratorium is lifted.
Right now, if anybody cannot pay, it may become NPA. Only after the moratorium is lifted, the picture will be clearer. Actually this picture will emerge within 30 to 90 days after the moratorium is lifted. Once the moratorium is lifted, then you will start classifying NPAs and providing for them.
In my interaction with all the bankers it was clear that no banker has ever been through a COVID-19 type of pandemic and a moratoriu. Although they are in touch with all their constituents and clients through their relationship managers and otherwise, they do not have a handle on what will be the level of NPAs 30, 60, 90 days from the time the moratorium is lifted. This is the case with HDFC Bank as well as other banks. Now that the leadership position has been solved, all eyes will be on what will be the NPA situation once moratorium is lifted
How important is it that the next person who comes on board is up to respective corporate governance standards and also has no blemishes so to speak on versus his capability to be a good manager at the bank?
First of all, HDFC Bank is an institution and over the last 25 years or so they have navigated through so many threats and have grabbed various opportunities. One has always ranked integrity and fair play highest amongst HDFC Bank which has been absolutely institutionalised over there and considering that they have an internal candidate who has been part and parcel of building that kind of a legacy. I do not think there should be much of an issue in terms of all these other risk factors which you have described.
If it was an external candidate, then there would have been some transition time and acceptance of that candidate by other senior management and that would have had its own risk factors. All those risks are now out of the window. Everybody knows who the person is and the other senior management have great comfort when it is an internal candidate, They know what kind of a CEO they are dealing with. Som there will be hardly any upheaval as far as all the top positions within the bank are concerned.
So is this the best case scenario for HDFC Bank? Whatever the tradition and systems which have been set by Mr Aditya Puri, Mr Shashidharan has been in the inner circle and part of those steps which the bank had taken over the decade. So, this is a great outcome for the employees, for the customers and more importantly even for the shareholders.
What more can we expect, that there is the same kind of exceptional growth which HDFC Bank has got for the last 25 years will now be continued? Of course there are other challenges, like the bank’s size has become very big and so base effect will come into play. The external environment is very fluid at this point of time and so those challenges are also there.
There is a great deal of resources as far as HDFC Bank is concerned. They have the brand and now we are seeing that there is a huge flight to quality as far as depositors are concerned. They benefit from that trend as well. A balance sheet of this size can take many minor shocks unlike the other balance sheets. Also they have adequate capital and the ability to raise capital to increase growth.
Whatever I am saying has been reflecting in the stock price which is the best performer at this point of time, going up almost 4% or so.