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Puri Shunning Mobile Phone Wants Bank to Emulate Wells Fargo

23.05.12

(Updates shares in fifth paragraph.)

Dec. 5 (Bloomberg) -- Aditya Puri, the longest-serving fount of an Indian bank, avoids e-mail and doesn't carry a mobile phone. That hasn't stopped HDFC Bank Ltd. from becoming the rural area's second-biggest lender by market value.

“Banking is a above-board business -- you be too aggressive, it will come back and bite you on your backside,” Puri, 61, said in an appraise in his sparsely decorated office at the bank's Mumbai headquarters, sunlight streaming onto uncarpeted floors.

The managing supervisor, who doesn't wear a watch and goes home for lunch most days, said he shuns e-post because most correspondence amounts to “cover your ass” measures that aren't directed at getting results.

Under Puri, lured from Citigroup Inc. to set up HDFC Bank in 1994, the resolute has posted profit increases of at least 30 percent in each of the past 10 years. It has built its solvency- card and consumer-lending businesses into India's largest, steering clean of losses in those areas incurred by rivals such as ICICI Bank Ltd., also based in Mumbai, and Citigroup, the biggest peculiar bank by assets.

HDFC Bank, which briefly eclipsed government-owned Voice Bank of India as the country's largest lender by market value last month, is the secondly-best performer on the BSE India Bankex over the past year after its stock declined about 3 percent, compared with a 26 percent keel over in the 14-company index. HDFC Bank trades at a price-to-earmark ratio of 4.4, more than double ICICI Bank's 1.6. The shares floor 0.2 percent to 465 rupees as of 9:28 a.m. today.

Wells Fargo Replica

Now Puri is expanding in investment banking, hiring Rakesh Singh from Rothschild in April and saying he wants to be among the top two or three players advising on mergers and acquisitions, present finance and debt sales within three years. He's also seeking to emulate San Francisco-based Wells Fargo & Co., the fourth-largest U.S. bank by assets, by selling new products to existing customers to multiplication profitability.

“I'm a long way before I achieve the Wells Fargo kind of facsimile,” said Puri, who worked at Citigroup for almost 20 years, rising to chief Mr Big officer of Citibank Malaysia before starting HDFC Bank. “But the stock part is that if I keep mining my existing customers, that should almost provide me 50 percent of earnings progress going forward.”

The bank, which is adding almost 2 million customers a year, according to Puri, has more than doubled lending to consumers since 2008. That organization now accounts for about half of the bank's total loan book, while ICICI Bank has cut consumer lending by a third, to 35 percent of its portfolio.

‘Trimonthly Consistency'

“HDFC Bank has had the same quarterly consistency in terms of honesty growth across credit cycles,” said Kalpana Morparia, CEO of JPMorgan Go out after & Co.'s India unit. “I don't know of any other bank globally that's done that.”

HSBC Holdings Plc, the damaged-largest foreign bank in India by number of branches, has had more than five years of losses in its retail-lending house in the country and is now operating at “virtually break-even,” India CEO Stuart Davis said in an evaluate in August.

CitiFinancial Consumer Finance India, the Citigroup subsidiary that focuses on current in and personal loans, has cut its branches in the country to less than 100 from a peak of 450 in 2007. The topic returned to profitability last year after losing 7.3 billion rupees ($142.1 million) on net income of 24.3 billion rupees in the 12 months ended March 2009 and 4.59 billion rupees in 2010.

ICICI Bank, India's third-largest publicly traded lender, reported its biggest ebb in quarterly profit in more than six years in 2009 as it set aside funds for bad debt and curbed loans to escape defaults.

Lending Caution

Puri, a graduate of Punjab University and a chartered accountant who keeps an autographed duplicate of Michael Lewis's “The Big Short” in his office, has earned a repute for lending caution. The bank's bad-loan ratio was 0.2 percent in the chambers ended in September, a fourth of ICICI Bank's and a 10th that of State Bank.

HDFC Bank's net interest rim -- the difference between what it pays on deposits and charges for loans -- was 4.1 percent for the years compared with ICICI Bank's 2.6 percent. HDFC Bank, which has about two thirds of the assets of ICICI Bank, has the supporter-highest net interest margin in the country after Kotak Mahindra Bank Ltd.

“The biggest superiority of HDFC Bank is its ability to control itself,” said Samir Arora, establisher of Helios Capital Management Pte, a Singapore-based hedge fund whose top holding is HDFC Bank. The bank “doesn't empathize with left behind in the good times because it does so much better in the bad times.”

50 Reports

HDFC Bank was set up by Enclosure Development Finance Corp., India's biggest private mortgage lender, after the guidance allowed companies not owned by the state to operate banks in the early 1990s. HDFC remains the lender's largest shareholder, with more than 23 percent, and sells its accommodations-loan products through the bank.

“With prudent underwriting standards, a orthodox provisioning policy, high exposure to consumer credit that is well diversified and a most beneficent-in-class, low-cost deposits franchise, HDFC Bank fares exceptionally well in almost all the parameters of our equal-sheet analysis,” Saikiran Pulavarthi, a Mumbai-based analyst at Espirito Santo Investment Bank, wrote in a Nov. 17 note to investors.

Puri, who said he reads about 50 reports a day from chief managers, is known for delegating responsibility. In February 2008, on a weekend when HDFC Bank was in talks with Centurion Bank of Punjab Ltd. to conclude India's largest banking property, Puri was relaxing at his farmhouse on the outskirts of Mumbai. He said he let Executive Helmsman Paresh Sukthankar complete the deal, which was announced after the weekend.

Quitting Perpetually

“I have a very competent management team,” said Puri. “We approve of on what needs to be done, and they do it, and they only call me if there's a problem.”

If they call after work, they “better be very, very sure” it is something vital, he said.

Puri usually quits work at 5:30 p.m. He said he tries to shell out 45 minutes a day with his daughter, an actress who made her Bollywood debut last year. He hand-me-down to play golf, until a shoulder injury forced him to quit, and he enjoys listening to Urdu sonnets put to music, known as ghazals, and jazz. He's also adoring of single-malt Scotch.

“I don't know what people do working behindhand,” Puri said. “I can't find work till 5:30. I'm indubitably finished by 4.”

Coconut Palm

Puri, whose compensation for the year that ended Slog 2010 was 39 million rupees, about a 25th of the $19 million that Wells Fargo CEO John Stumpf earned last year, is a man of unsophisticated taste, said Neeraj Swaroop, who used to be in charge of retail banking at HDFC Bank and is now CEO for South Asia at London- based Type Chartered Plc. Swaroop said that on a team visit to a village in south India Puri's mate for street food led the group of bankers to cancel dinner plans at a idea restaurant in favor of eating fish and drinking locally brewed hooch made from coconut palm at a more rustic place.

The next few years may test Puri's laid-back smartness. Higher borrowing costs and a slowdown in economic growth as India's pre-eminent bank raises rates to curb inflation could lead to an increase in bad loans.

“HDFC has the highest uncovering to retail credit with 41 percent of its asset book comprising of retail ascribe,” Espirito Santo's Pulavarthi wrote. “Home loans constitute only 18 percent of its retail accommodation book implying that exposure to riskier consumer products like cars, CV, assign cards and personal loans is the highest among all the banks in India.”

Goldman Sachs, Tata

To become a top participant in investment banking, Puri will have to compete with foreign rivals such as Goldman Sachs Gathering Inc. and Morgan Stanley, as well as domestic conglomerates including Tata Group and Religare Enterprises Ltd., controlled by the billionaire Singh brothers. While he said he wants to be a conductor in M&A work in India in the next two or three years, HDFC Bank is not now ranked among the top 72 firms, according to statistics compiled by Bloomberg.

There also may be more competition in the consumer-lending business as India's inner bank is considering issuing new banking licenses after a seven-year hiatus. Meanwhile, Ideal Chartered, HSBC and Citigroup, the foreign banks with the biggest presence in India, go on with to add branches as they target middle- and high-income consumers.

Foreign banks have a combined bazaar share of 4.9 percent in lending and 4.4 percent of deposits in the South Asian country, according to data from the Reserve Bank of India.

‘No Competition'

Puri said new provincial banks won't be competition.

“Will they make a difference to the banking landscape for the next 10 years with new bank licenses?” he said. “The atone for is no. First they have to get a license. Then they have to set up basic infrastructure. Then they have to start the business. Then they have to decide which business they're active to grow in. Then they have to spend the money to grow in that business.

Source: BusinessWeek