A message from our Chairman and our MD & CEO
We stand at the cusp of a New Era
 Atanu Chakraborty Part-time Chairman and Independent Director HDFC Bank Limited |
Dear Stakeholders,
Greetings!
It gives me immense pleasure to present to you the Integrated Annual Report of our Bank for the financial year 2022-23.
The year 2022-23 gone by was a momentous year in many ways. It was a year in which the world largely shook off the effects of the COVID-19 pandemic thus enabling Governments, businesses and people to rebound in their activities with renewed zest and make fresh beginnings and investments. At the same time, quite unexpectedly, it was the year when the world was buffeted by a surging geopolitical turmoil, burgeoning energy prices and inflation, and the inevitable tightening of the monetary policies around the globe.
Despite global headwinds, the Indian economy continued to demonstrate resilience. The runway for growth in India, predominantly driven by the country’s domestic consumption, remains immense. Global investors and India watchers have acknowledged the country’s macroeconomic and financial stability.
For us at HDFC Bank, the year started with a path breaking announcement of the merger of our promoter, HDFC Ltd., one of the largest housing finance companies of India with the Bank. This merger was meant to, inter-alia, transform the Bank to a financial services conglomerate straddling key financial services and products, including housing loan, life and general insurance, and asset management amongst others.
The merged entity would benefit from increased scale, comprehensive product offering, balance sheet resilience and the ability to drive synergies, enhance operating efficiencies and underwriting efficiencies, thereby leveraging the complementary strengths of both the organisations. This would enable the Bank to serve its customers in a significantly enhanced way with a bouquet of financial services.
I am happy to inform you that the merger has now been completed within our estimated timelines and focus now shifts on capturing the full benefits of the synergies and future proofing the Bank for the coming decades.
The Integrated Annual Report being placed before you would once again demonstrate that the Bank has achieved over the past financial year, robust growth in its businesses with healthy financial performance and profitability, and it continues to be one of the best managed banks in terms of its risk management, non-performing assets, regulatory compliance and governance standards. This reflects the effectiveness of our governance culture and the supervision of the Board. Let me elaborate on these themes.
Governance at the core
At the Bank we accord tremendous importance to very high standards of corporate governance. This philosophy rests on the essential principles of independence, accountability, responsibility, transparency, fair and timely disclosures which have built credibility over the years. The various Committees of the Board met throughout the year giving them an opportunity to take stock of various aspects of critical importance to the Bank. These Committees enabled the Board members to perform their governance and supervisory duties and have an oversight on the performance of senior management. This ensured that your Bank would not be buffeted by sudden ebbs and flows of events.
Review of the Bank’s performance and responsibility to society
During the year under review, the Bank has delivered strong growth while asset quality remains one of the best in the industry. The details of our performance are captured across the report before you.
It is important to reiterate that the Bank recognises its responsibility to the community and society quite seriously. This was reflected last year as we emerged as a leading contributor in Government schemes, particularly those which helped the nation emerge out of the pandemic. We were the largest participant under the Emergency Credit Line Guarantee Scheme (ECLGS) disbursing over C44,000 Crore and supporting about 1.25 Lakh MSMEs. In addition, the Bank continued to increase its exposure to the agricultural sector and weaker sections of society.
The Bank's Corporate Social Responsibility (CSR) activities and initiatives on Environmental, Social and Governance (ESG) parameters remain important focus areas for the Board.
Future ready: adopting Information Technology
I am happy to inform you that the Bank management is focused on result driven investments in IT and digital transformation of the Bank and the Committees of the Board spend considerable time in the evaluation of the implementation of the IT strategy of the Bank. Over the last year we have focused on strengthening our core IT infrastructure in terms of high availability, capacity additions ahead of time, new Disaster Recovery siteimplementation, moving towards hybrid cloud architecture etc. All this enables us to ensure that we are able to run the Bank and provide our customers the convenience of availability of our services round the clock.
Harnessing the Power of One
During the last year, we indicated a timeline of 12 to 18 months for the merger process to conclude and we have completed the merger within the indicated timelines. Executing a merger of this scale and complexity would not have been possible without the immense support and co-operation received from the Government of India, Reserve Bank of India, Competition Commission of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India, National Company Law Tribunal and all the other agencies.They have helped us navigate through the complexities of this merger and on behalf of the Board of Directors of HDFC Bank, I extend a deep sense of gratitude to all of them.
I would also like to thank Shri Deepak Parekh for the role he has played in nurturing HDFC and its group companies with great passion and commitment over four and a half decades.
The Bank is now fully poised to take the benefits of the merger. The entities have formed an Integration Committee that has been working on various streams across businesses, IT, HR, Risk Management, Operations, Compliance, etc. to make the merger seamless and effective. We are also putting in place the strategy to ensure that the financial conglomerate that has emerged has in place adequate systems and processes to ensure adherence to the various regulatory regimes and a governance framework for meeting group wide compliance and risk management objectives. The shareholders and other stakeholders are now part of a world class financial conglomerate and we expect that by this time next year we would be well positioned to see the benefits of the Power of One.
Conclusion
I would like to say that we stand at the cusp of a new era which will define our future; a future in which I have full confidence of demonstrating growth, stability and serving our burgeoning pan India customer base even better.
Atanu Chakraborty
Part-time Chairman and Independent Director
HDFC Bank Limited
The merger perhaps could not have been better timed
 Sashidhar Jagdishan Managing Director & Chief Executive Officer HDFC Bank Limited |
Dear Stakeholders,
Warm greetings to you all. The year gone by was one in which the world moved away from the new normal to the normal. The pandemic is largely over. However, the after effects of decisions made during those trying and unusual times have left behind a lot of issues for the world to address. This includes higher inflation and resultant monetary tightening, and the regional banking crisis in Europe and USA.
For us in India, we can see that our economy has been resilient and we as a country have managed these after effects pretty well, by the speed and scale of our vaccination and the deft economic and monetary policy initiatives by the Government and the Reserve Bank of India (RBI).
Coming to our Bank, the year started with a path breaking announcement of our intent to merge HDFC Ltd. with the Bank. I am happy to report that the merger has come into effect from July 1, 2023. I will share further details on this significant milestone in our history, further down.
Macroeconomic Environment
A prominent global publication referred to the post-pandemic economy like the Mona Lisa. Each time you look, you see something different. It was felt that perhaps the world is simply more volatile. However, the good news for us is that India remained one of the fastest growing large economies in the world and an engine of global growth. We did not have to contend with such uncertainties. The Indian economy exhibited robust resilience in 2022-23 recording a growth of 7.2 per cent, which was the highest among major economies of the world. This achievement comes in a scenario where global economic growth is expected to moderate on account of monetary tightening in developed economies, the crisis in the US regional banking sector and the continuing war in Ukraine. India is predicted to grow around 6 per cent in the current financial year. This is lower than last year’s growth but is still much higher than what is projected for many developed economies. The recession fears in major economies and expected slowdown in export growth means that India cannot remain entirely insulated from global pressures. However, the domestic resilience as reflected in 2022-23 is an indicator that India is likely to withstand future headwinds. This brings me to the India story.
HDFC Bank with its stronger digital platforms, digital journeys and physical branch network will have the ability to offer the home loan customer a complete bouquet of the Bank’s and subsidiaries' products and services.
The India Story
What is the India story? It is a story of demographics, education, digitisation, rising incomes and aspirations and geopolitical developments coming together to give the country a once in a lifetime opportunity. It starts with demographics. About half our population is below the age of 35. India’s working age population (15-64 years) is expected to rise and peak close to 65 per cent by 2030 and thereafter stabilise. The proficiency of Indians in Science, Technology, Engineering and Mathematics (STEM) coupled with their felicity with the English language gives India a clear differentiator.
Next comes the Government’s rollout of digital infrastructure - the largest such in the world. The result is that India has taken the lead when it comes to digital transactions. More than 40 per cent of these transactions are from India. This also fuels further aspirations as the Internet is a clear leveller when it comes to information. Through mobiles, laptops, PCs, and social media, Indians have similar access to information in major cities and in the heartland. This in turn is being backed by increasing purchasing power with a per capita income of $2,000. So, the demand for consumer goods and financial services is expected to increase exponentially. The other consumption enabler is the Government’s rationalisation of income tax slabs which will put more money in the hands of people in lower income brackets. On the investment side, the increase in Government capital expenditure should crowd in private sector investment as well. Global geopolitical developments too favour India. All these create the necessary climate for India to get a much larger share of the foreign investment pie, emerge as a global production hub and become an $8 trillion economy in about a decade, from $3.5 trillion. Naturally, this also acts as an enabler for growth in financial services which is under penetrated and underserved. India’s housing story will also feed off this growth and the merger could not have perhaps come at a better time.
The Merger
Last year I had explained the rationale for the merger. To quickly recapitulate, this was an opportunity that we truly believed in. Buying a home is a family decision and an emotional one. This emotion is transferred to the home loan service provider and helps build lifelong bonds with the customer and his family. Also, only 2 per cent of our customers source their home loans through the Bank, while 5 per cent do it from other institutions. This itself is a huge opportunity.
It is this bond with the customer that the Bank would like to build on. HDFC Bank with its stronger digital platforms, digital journeys and physical branch network will have the ability to offer the home loan customer a complete bouquet of the Bank’s and subsidiaries’ products and services. Savings accounts, personal loans, insurance cover, SIPs can all be bundled along with a home loan to create a compelling value proposition to the customer, that probably does not exist in the market at the scale at which this is envisaged. Going forward this is clearly going to be a game changer.
As India grows, home buying across the country will only accelerate and emerge as a key driver of India’s GDP over the next decade, especially affordable housing. Investments in infrastructure are vital for India’s growth. A bigger balance sheet postmerger will enable HDFC Bank to take a larger exposure in infrastructure projects. This means we can participate more meaningfully in India’s growth story and contribute to nation building. In light of all this, the pace at which we aim to grow - we could be creating a new HDFC Bank every 4 years.
The merger would of course not have been possible without the support and guidance of the regulatory authorities including RBI, SEBI, CCI, IRDAI, BSE, NSE, PFRDA and NCLT. I would like to take this opportunity to thank all of them.
Now, to come to our performance.
Our Performance
As a Bank our performance has been consistent across business cycles. We have grown our Balance Sheet and Net Profit while maintaining our asset quality.
Our Balance Sheet grew by 19.2 per cent to ₹24,66,081 crore and Net Profit increased 19.3 per cent to ₹44,108.7 crore. Net Interest Income increased by 20.6 per cent to ₹86,842.2 crore. GNPA decreased to 1.12 per cent from 1.17 per cent. We have been able to maintain a stable NIM at 4.1 per cent (4.3 per cent on interest earning assets) despite deposits growing by 20.8 per cent on account of low cost of funds. The Return on Assets (ROA) was 2.07 per cent while Return on Equity was 17.4 per cent. Our commitment to shareholders remained high with a proposed dividend pay-out of ₹19 per equity share of ₹1/- which translates to a dividend pay-out ratio of 24.07 per cent of the profits for the financial year ended March 31, 2023.
I am pleased to state that the Bank’s performance continued to be robust during FY 2022-23 with sustained growth across the Wholesale, Retail and Commercial and Rural Banking businesses.
In my letter to you in the last two years, I had highlighted my key focus areas. These are: improving technology resilience, a clear focus on three Cs: Culture, Conscience and Customer and building for the future. Let me now elaborate on these.
Technology Update:
HDFC Bank is today in the midst of a technology transformation exercise that focuses both on building the Bank of the future as well as running the Bank. For me, the focus on technology upgrade and digital transformation are central to achieving growth as well as excellence in customer service.
We are focusing on two foundational aspects. First, transforming the Bank through new platforms and customer experiences offered by the best-inclass products and services through our digital factories. Second, running the Bank efficiently by reinforcing our core technologies with enhanced performance and resilience at scale, through the enterprise factory. Our digital transformation journey is being powered by building competencies within the Bank. The factory approach is focused on leveraging new-age tech such as AI/ML, cloud-native architecture, API-driven banking as well as pioneering industryfirst initiatives through emerging technologies such as generative AI enablement across banking domains.
Some of our flagship programmes focused on our customers are enumerated below:
- Our modernised PayZapp 2.0 arrives with a variety of quality-oflife improvements while offering convenience, security, and a wide array of payment options at customers’ fingertips. This will drive our acquisition of New To Bank customers.
- SmartHub has grown into the preferred banking platform for merchants with over 1.5 million using the app, handling over 18 lakh transactions daily.
- Our Bank One Program is a cloud-native platform powered by conversational AI & ML capabilities offering our customers a unified banking experience across channels. With multilingual bots covering ~40 per cent of customer interactions, the platform has significantly boosted efficiencies and reduced resolution times.
- Our Acquisition Platform enables a smoother and more consistent customer experience for purchase of the Bank’s retail products on the Bank’s platforms and has facilitated more than 5 million products being availed by our customers.
- Xpress Car Loan has evolved into India’s single largest digital loan platform for origination and disbursement with over 50,000 happy customers.
- Smart Saathi, our most recent launch, digitally enables our network of Business Correspondents and Business Facilitators by providing them an omnichannel experience of our digital products.
- The Bank has driven various industryfirst innovations through programmes such as Digital Cattle Finance, Digital Rupee, OfflinePay, Digi-Passbook, exploration of AI / ML based data extraction and signature verification.
- On the Corporate Banking front, the Bank hosts Corporate Banking eXchange (CBX) which is one of the largest corporate transactions platforms and a state-of-the-art Trade Finance platform.
Our conscious effort has been to launch in small scale, listen to customer feedback, build acceptancethrough word of mouth before we fully scale. We will continue to invest in technology for improving our customer experience.
Parallelly, our core technology is being reinforced through the power of cloud for improved resilience, scale, and agility. We have migrated our data centres to new state-of-the-art facilities in Mumbai and Bengaluru. We continue to focus on upgrading our infrastructure with an Active-Active architecture for greater availabilities and high-performance apps. The 'Hollowing the Core' programme is set to transform the way core banking is operated. Basis the investments made, we have seen a significant improvement in our resilience and uptime (basis both internal and external public sources) metrics. However, we are not perfect and we will continue to further strengthen our core IT infrastructure.
Our competency factories are maturing into innovation labs and are increasingly partnering with the Government institutions and FinTechs to develop prototypes of the next wave of digital banking products. For instance, we are leveraging generative AI for structured and unstructured data extraction from documents, developing AI-based instant credit decisioning models and significantly improving fraud monitoring through real-time selfmonitoring ML models.
Attracting and developing the best engineering talent with new-age tech skill sets is a top priority for us to lead into the next age of neo-banking. The Bank is strategically positioning itself to capitalise on new opportunities which are poised to revolutionise banking and is making technology investments for the future. A steady growth of strategic investments in emerging tech and partnerships will ensure that HDFC Bank stays ahead of the curve in driving innovations and industry benchmarks.
Customer Centricity, Service First Culture and People
Every decision of ours is an endeavour to increase the benefits it brings to our stakeholders.
A service first culture has always been one of the anchors of the Bank’s growth story. It starts with taking care of our employees who in turn take care of our customers.
I have personally travelled across the country in private buses, with colleagues across levels travelling with me. This has given me the opportunity to meet employees as well as customers across multiple locations in the country. These interactions have enriched my understanding and view of the locations visited and the myriad opportunities that exist in this vast country. I am energised by the talent and passion that our frontline colleagues display during these interactions and also give us enough ideas to work on. This is something I will continue.
In order to institutionalise and measure a Service First Culture, we have implemented an at scale episodic bottom-up Net Promoter System (NPS). This allows us to get a real time customer feedback on their interactions with the Bank and helps us draw up plans to keep improving in the areas where we are still not up to the mark. I am happy to report a consistent increase in our Net Promoter Score for the Bank as a whole, year on year and this augurs well. I accept that we may not be perfect with our customer interactions all the time, and this is one area, I and the entire Bank are focused on improving day in and day out. We are digitising many of the Customer Service interactions at a fast pace and I firmly believe that this will provide the impetus to keep improving our Service First culture.
In addition, we constantly benchmark ourselves with our competition to learn and better ourselves. HDFC Bank continues to lead the overall brand NPS ranking (independent third-party survey) among 20+ competitors in the banking category for the second year in a row.
We have also developed a unique Service Quality Index (SQI) for our key customer facing channels which measures the performance of these channels on critical customer service parameters and helps improve on the same.
The complaints trend indicates that digital frauds are increasing, particularly targeting a vulnerable section of consumers. We are committed to help safeguard customers by way of increasing awareness amongst people and improving our technology tools.
The initiative of Vigil Aunty to promote awareness amongst customers about cyber frauds has been well received and we would further invest in this area. In terms of technology investments to prevent frauds, the Bank has invested in wrapper, device binding, device assurance and multi-factor authentication and would continue to invest to protect our customers.
As a Bank we are making progress on our Customer Service, but I believe that this journey has to be accelerated every year. More remains to be done and I am fully committed to improving our customer centricity further.
A Service First culture is not possible without an organisational culture that acts as the foundation for the same. Let me dwell on this here.
Culture
Culture defines the experience of each employee. Managers are in the unique position to represent the culture the Bank stands for. Talent, Potential and Capabilities can best be harnessed through an enabling culture. Towards this the Bank has adopted the managerial behaviour architecture - Nurture, Care and Collaborate. This encapsulates what we espouse in our Culture Framework – the HDFC Bank Way and translates it into simple behaviours that managers can demonstrate in their interactions with their teams. The Nurture, Care, Collaborate initiative that covered over 12,000+ managers in the previous year was extended to the senior leadership levels and over 6,000 new managers in FY 2022-23. The intent is to have all managers at the Bank equipped to fully live the cultural ethos of the Bank.
I am fully conscious of the fact that there may be instances where some people managers might transgress our defined way of working. We have the resolve to nip this in the bud, both by way of training/counselling and appropriate action, to ensure that the same is not attempted by anyone else. Having said that, we have some distance to traverse on this front. We are taking concrete steps towards building an INCLUSIVE organisation, which will go a long way in reining in attrition in the coming years.
The Bank has experienced an increase in attrition over the last financial year and a significant part of which was in the ‘non-supervisory staff’ levels (which includes Sales Officers). One reason that can be attributed towards this increase, is a post COVID phenomenon, that may have prompted the younger workforce to recalibrate what they ‘want from their lives’. This has led to increased attrition across all sectors. It is a reality that all major employers are grappling with, especially in the BFSI sector.
However, we are cognizant that the experience of working with HDFC Bank can be better on several counts, especially culture. The Bank upholds RESPECT for ALL as a fundamental tenet in the way we work with each other and our customers.
Listening is vital to understanding the sentiment of an organisation and thus we launched Pulse, a real time feedback platform for employees to share candid feedback. This platform is completely anonymous, and we’ve already launched 20 surveys to check the sentiment of the employees on topics like Work Life Harmony, Pleasant Parenthood, Future Banker Program and Onboarding Experience, to name a few. We continue to listen, learn, and act on the feedback so that we can improve our work environment and people practices in order to provide space for all our employees to excel, thrive and have a long, fulfilling career at the Bank.
Skilling our people continuously is another important area that I am focused on. We challenge people with continuous job rotations and assignments outside of their core areas, along with on the job and specialised training where needed.
We will continue to do more on this path.
Building for the Future
In the last two years, I have spoken about Project Future Ready, to catalyse, create and capture the next wave of growth. The following growth engines had been identified: Corporate Banking, Commercial (MSME) and Rural Banking, Government and Institutional Business, Wealth Management, Retail Assets and Payments, to be driven by our delivery channels of Branch Banking, TeleSales/Service/Relationship and Digital Marketing. These can be categorised as Business Verticals and Delivery Channels. Underlying all this will be our technology and digital platforms.
We have seen progress in our strategy. The Commercial and Rural Banking loans have grown by 29.8 per cent. Your Bank is today the largest SME Bank in the country and has grown this book by adhering to stringent underwriting standards.
We have grown the Corporate and other Wholesale loans by 12.6 per cent while maintaining a healthy ROA. We have expanded our wealth management services to over 900 locations. Our domestic retail loans have grown by 20.8 per cent without compromising on asset quality. Our payments business continues to perform well, and we continue to enjoy a leadership position there.
Branch Banking is the fulcrum of our customer relationships, and we believe that a physical branch is extremely important to customers especially in semi urban and rural locations. In FY 2022-23, we added a record 1,479 branches, a majority of which are in semi urban and rural (SURU) locations. We plan to add another 675 this year in SURU locations that will take the total number of branches in these locations to over 5,000. Overall, the Bank plans to add 1,500 to 2,000 additional branches during the year. The concept of phygital branches will help us to be agile in meeting customer needs through digital transactions and at the same time give customers a sense of engagement and security with a physical touchpoint. Going forward, the new branches, we believe, will be key to additional deposit mobilisation.
An increasing customer base needs to be engaged and managed and our investment on Virtual Relationship Management is delivering on what we are building it for.
Digital Marketing has helped increase the traffic by 35 per cent on our digital properties. The traffic has been harnessed leveraging advanced analytics and our new digital acquisition platform, resulting in direct business generation across all retail products of the Bank, selling directly more than 3.8 million products. I expect the pace of growth of this channel to further increase and also encompass practically all service interactions as we move forward.
Our technology transformation initiatives coupled with our core enabling functions of Internal Audit, Credit and Underwriting, Risk Management and Compliance/ Governance continue to be integral to the health and growth of the Bank.
Environment, Social and Governance Strategy (ESG)
According to the United Nations, the world is now warming faster than at any point in recorded history. While this calls for global action, as a Bank we are contributing to this in our way. Two years back, we committed to become carbon neutral by 2031-32. We have formulated and are implementing a strategy towards achieving this with interim milestones.
ESG is being made an integral part of our credit assessment process. Assessment of environment and social factors has been a part of credit diligence, particularly in project financing above a certain threshold for many years now. This has been strengthened further through a comprehensive ESG and Climate Change assessment framework in corporate lending. This is still at an early stage as right now we are focused on increasing awareness among our corporate borrowers and understanding where they are in their ESG journey. Going forward, we would be looking to make it one of the key criteria in credit decisioning. In the last financial year, we have financed 6,110 MW of renewable energy capacity. Over 940 of our branches have been green certified and all our future branches will conform to green building standards. The overarching vision is in place for ESG, and we continue to make steady progress on this.
Not only do we believe in leading responsibly but are also committed to being responsible social citizens. Through our CSR initiatives under Parivartan, we have potentially impacted over 9.93 crore lives. In FY 2022-23, around 500 projects were executed through 250+ Implementation Partners spread across 27 states of the country. The impact of our projects is tracked internally and externally through impact assessment studies.
We continue to take affirmative steps towards being a more inclusive organisation. The Bank is committed to fostering Diversity and Inclusion. We have prioritised our focus on two aspects of diversity - Gender and Persons with Disabilities (PwD). Women comprising 25 per cent of our workforce by 2025 is an aspiration that we are actively pursuing. We have been steadily making progress towards this goal and 23 per cent of our colleagues are women. We continue to maintain gender equity with respect to pay, promotions and elevations.
Good corporate governance is a product of culture and conscience, and this is vital for the long-term sustainability of the organisation. Our focus on compliance and assurance functions is unwavering and we continue to strengthen the checks and balances through these.
Conclusion
The year started with the announcement of the intent to merge with HDFC Ltd. This has now been concluded within the anticipated timelines. While this gives the Bank a strong runway for future growth, it also helps us contribute to nation building by helping more Indians buy a home and secure jobs. And yes, help the economy grow further.
I end by expressing my heartfelt gratitude to our Board members for their guidance, supervision, unwavering support and belief in our abilities. Finally my gratitude to all my colleagues for their contribution not just for the year gone by but also for their efforts over the years, making the Bank count amongst the world’s finest financial institutions.
Sashidhar Jagdishan
Managing Director & Chief Executive Officer
HDFC Bank Limited