Having had a highly successful maiden debenture issue in October 2013, the nation’s apex housing development truss, Housing Development Finance Corporate Bank (HDFC Bank) embarks on its second debenture issue, maximizing on the upward momentum being experienced in equity and debenture markets currently.
HDFC Bank which was initially mooted as a building society in 1984 during an era when the country launched a national housing development drive was transformed into a corporation in year 2000.
It gained its specialised banking license for housing in 2003 and it was time for HDFC to begin seeking new horizons. Two years later, HDFC was listed on the Colombo Stock Exchange and in 2011, the prevailing Act was amended to enhance its banking operations, enabling HDFC to augment value to its underlying ethos of being truly ‘The Housing Bank’.
In this interview, Chairman R J De Silva and General Manager/CEO Nimal Mamaduwa explained the reasoning for the debenture issue and the overall vision the HDFC Bank is pursuing to ensure that housing becomes accessible across the entire nation, irrespective of geographic, social or economic strata.
What’s the reasoning for the debenture issue at this point of time?
CHAIRMAN: With the government having initiated the 500,000 housing programme, I feel this falls right into the purview of HDFC Bank, given that we already have the framework and rudiments in place to moot and develop housing for the social segments that this programme is focused on. This is a five year programme which is well aligned with the plans we have for this Bank. I strongly believe that through this debenture issue and other avenues, we will be able to mobilize funds to be at the forefront of this initiative.
GM/CEO: Our business model inherently has a mismatch given that we work on long term lending with short term borrowings via customer deposits and inter-bank borrowings. It has thus become almost imperative that we obtain funding from alternative channels. Our very first debenture issue was extremely successful and was oversubscribed. This displays the confidence that the market has in us. Hence the objective of this issue is threefold. One, to mobilise/raise medium to long term funds to manage our assets and liability mismatch and associated liquidity risk; secondly, to finance the medium long-term budgeted lending portfolio and minimize the mismatch in funding exposure and thirdly to minimise interest rate risk exposure we are faced with.
What are the unique features of this issue?
GM/CEO: This year we are venturing into ten year tenors in addition to the five year tenor, the latter in the two tiers of floating and fixed. The Ten Year tenor will have a fixed interest at an interest rate of 12 percent, while the Five Year (A) will work on AWPLR+1.5 percent on the floating rate which makes the annual effective rate 10.78 percent. The Five Year (B) posits a fixed interest rate of 10.5 percent. The payment frequency for the Five Year tenors will be quarterly and semi-annually, while the Ten Year tenor will have an annual payment frequency.
What are the advantages an investor would have in subscribing for this issue?
GM/CEO: Firstly, this issue has gained a rating of BBB from Fitch Ratings Lanka, a rating which has been deduced from our financial performance as well as the emphasis we have always had in strengthening our triple bottom line. Also, we have NDB Investment Bank and Bank of Ceylon as joint managers to the issue, both of which are well reputed entities in the market. Another is that debentures are free from taxation and will undoubtedly be a solid investment given that our share price is trading consistently well on the Bourse. The Bank’s solid financial foundation and continuous improvement in the last three years and this year is well evidenced in both our quantitative and qualitative performance.
How do you intend publicising the issue?
CHAIRMAN: We will be using the regular mass media channels, primarily the print media which is a regulatory requirement and also promoting the issue through our prospectus. Our initial provision is Rs 3 billion but we are confident, from what we observed from the over-subscription of our last issue, that we will top the Rs 4 billion mark.
What is your financial performance in the immediate?
GM/CEO: Very simply, we have been very consistent with our financial results. In the first half of 2015, we recorded an impressive PBT of Rs 388.9 million, notching an improvement from Rs 310.5 million over the corresponding period of 2014. Similarly, PAT too showcased a significant increase of 49 percent to stand at Rs 276.2 million. All our key performance indicators have shown considerable improvement, whether in interest income which increased to Rs 2,260 million displaying an increase of 6.7 percent, deposit base showing growth of 6.8% to Rs 26.1 billion or the loan book increasing 5.2 percent to Rs 24.6 billion. Return On Assets stands at Rs 2.71 percent compared to Rs 2.51 percent as at end December 2014.
We have always maintained a stringent compliance milieu in the governance of the Bank which is well evidenced in the multiple awards we have won in the past, including the ACCA Sustainability Reporting Awards. Our Tier 1 and Total Capital Adequacy Ratio are well within regulatory requirements at 13.08 percent and 12.29 percent respectively, while our statutory liquid asset ratio too conforms well to the regulatory requirement of 20 percent, which is posted now at 30.6 percent. The Bank maintains a very stringent control and monitoring process to ensure that our customers gain the benefit of our partnership, rather than face hurdles in their quest to obtain a roof over their heads. Hence, we always emphasize the positive advantages of long term relationships with our stakeholders which is surely an inherent trait in the entirety of our philosophy.
So what are your strengths?
CHAIRMAN: The biggest I would say is our potential. Our committed and dynamic team is continuously motivated to break boundaries and seek new horizons. The fact that we now have a physical presence of 38 branches via infrastructure, does not preclude us from touching every person in this country, given that we use a large team of field personnel who literally help even the most disadvantaged with our unique service tenet of banking on their doorstep.
Using palmtops, we have moved into areas that are severely challenged, sometimes in the farthest geographical areas and even social segments who are challenged to find the time or the mindset to conduct banking operations, making communities bankable and bringing them into the banking system. In the macro perspective, making citizens bankable is a social responsibility we must take seriously because this has a permeating impact on the country’s development progress and our ethos of giving everyone with a home, absolute credence.
Our business focus is multi-fold. We don’t simply assist those who want new homes, but we are very keen on uplifting total lifestyles, whether it’s in purchasing new homes, apartments or refurbishing and renovating existing homes. While our primary focus is on the lower and middle income earner, we may also assist other income brackets depending on their requirements. Through this debenture issue therefore, our ultimate goal is to gain long term funding so we can be even more active in the housing sector. Our portfolio of products and services lends itself to the manifold requirements of the current homeowner given the extension of SME loans, microfinance and even business loans, value adding to our stakeholders’ lifestyles and empowering their financial capabilities.
HDFC Bank opens its debenture issue on the 16th of November 2015.