What A QIP!

HDFC Bank knows how to keep it simple; come rain or shine, it continues to grow its book at a steady run-rate. And if you happen to be the most valued banking stock in the world as you go about it, investors will hand over money hand over fist to you. If that’s not reason enough for cheer, the structuring and timing of its Qualified Institutional Placement (QIP) made it the ‘QIP Deal of the Year’ in BW Businessworld’s I-banking Survey 2016 with the Knowledge Support of PwC.

On 19 February 2015, HDFC Bank’s QIP raised Rs 9,722.8 crore. Under the domestic, it issued 1,87,44,142 equity shares at Rs 1,067 per share (a small discount to its share price at that point in time) for Rs 2,000 crore; on the off-shore side, you had an American Depository Receipt (ADR) offering of 2,20,00,000 ADRs (representing 6,60,00,000 equity shares) at a price of $57.76 per ADR for $1.27 billion.

The timing of the QIP could not have been better. The capital requirement of all state-run banks over the next four years is seen at around $40 billion (the better among the private will also do likewise). It’s based on expectations the eventual CET1 (common equity tier-I) for banks will be closer towards 9.5-10 per cent. But going by global standards, it looks like an increasing number of banks will veer towards a 12 per cent minimum CET1; and if that happens for India, capital raising could further pick up. HDFC Bank timed the market well before the crowd!

Says Atul Mehra, MD & Co-CEO for Investment Banking at J. M. Financial: “While we were working on the domestic-only deal, the simultaneous international offering (ADR) meant we had to work on crunched timelines. The domestic QIP closed on time before US markets opened to ensure appropriate sizing and allocation of the international offering such that Indian foreign holding regulation (74 per cent) were not breached.”

Fuel For Growth
HDFC Bank’s big bet is the hinterland as it believes this presents a significant opportunity for continued growth in under-served areas and tap into new customers. Allied to this out-reach strategy are investments in its digital platform which will allow it to cross-sell across a range of customer segments.

Says Aditya Puri, managing director-HDFC Bank: “There are very few players in organised finance, I mean in terms of bankers who are on the asset side of the balance sheet in semi-urban and rural areas. We were one of the few who went in there four years ago. That’s almost like a virgin territory where 60 per cent of India lives. So we quickly adopted digital”.

The thrust shows up in the numbers. At end-September 2014, HDFC Bank had 3,600 branches, 11,515 ATMs in 2,272 cities and towns — a sharp increase of 1,056 branches, 2,602 ATMs spread over 873 cities and towns over end-March 2012 (the QIP came in a shade over a month before its book closure for the fiscal). By end-March 2015, the bank had upped its network to 4,014 branches across 2,464 cities and towns (3,403 branches in 2,171 cities and towns) — the bank’s focus on semi-urban and rural markets was evidenced from the fact that 52 per cent of its new branches were in these areas.

At end-March 2015 its balance-sheet stood at Rs 5,90,503 crore, up by 20.1 per cent over the previous fiscal. Deposits stood at Rs 3,67,337, up by 22.7 per cent while net advances at Rs 3,65,495 crore were up 20.6 per cent. The bank had a market share of approximately 4.9 per cent and 5 per cent of the domestic banking system’s deposits and advances; its credit-deposit stood at 81.1 per cent (82.5 per cent). The CD ratio tell you how much a bank lends out of its deposits; how much of a bank’s core funds are being used for lending. The fact that it’s stood at the level it was tells you the bank was very much on “auto-pilot” even in tough times.

That growth is a way of life at HDFC Bank (and that’s why the QIP was in order) shows up in the end-March 2016 results. Advances stood at Rs 4,64,594 crore, up by 27.1 per cent. Both retail and wholesale loans grew faster than systemic loan growth. As per regulatory [Basel 2] segment classification, the domestic retail loans and wholesale loans grew by 29.7 per cent and 27.2 per cent respectively (as per internal business classification grew by 28.4 per cent and 28.5 per cent). The retail to wholesale loan mix was 51:49.Is it any wonder why HDFC Bank’s QIP was a hit?