Thread by @FinFloww

What makes HDFC Bank India's largest bank 🏦 and how they do business? A thread 🧵

Started and grown by the legendary banker Aditya Puri sir, HDFC Bank is one hell of a story🔥 but we'll talk about the story some other day.

HDFC Bank is a pioneer at risk management.

If you see the banking business is pretty simple⤵️

1️⃣ They take money from you (the depositor) and pay you a certain interest for it.

2️⃣ Then lend that money to a person or organisation who wants to borrow. Banks charge an interest from them.

3️⃣ The interest at which they lend (to the borrower) is higher than the rate at which they borrow (from the depositor)

4️⃣ The difference in that is the bank's margin.

Simple model right?

So many borrowers out there and the demand will never go down?

Wrong! The most important part about a bank is the loan repayment.

Banks focus on reducing NPA (non performing asset) as much as possible.

NPA basically means loan takers who take loans but aren't able to return them.

These people harm the banks.

HDFC Bank specialises in NPA reduction aspect. How? ⤵️

In it's segments HDFC bank is 48% in Retail banking. 24.9% into Wholesale banking.

Retail banking means they provide more loans to the normal people like you and me.

Includes personal loans, car loans etc. and they are very careful with their corporate lending.

Now how can providing loans to common people be safer than providing to corporates?

So, if you see the loan amount borrowed by common people is less, even if 10 out of 1000 people fail to return the loan, it would not hurt the bank that much.

But if 1 out of 10 corporates fails to return, it's going to hurt the bank a lot, as the loan amount was more.

A focus on retail lending helps them in the distribution of risk.

And corporate lending is risky, but HDFC Bank minimises that risk too.

They are very careful at giving loans to corporates.

They give loans to corporates in relatively safer sectors.

Their exposure in sectors like telecom, airlines (which are more likely to default) is wayyy low.

They have an amazing credit card business too with the biggest market share of around 24% in India.

So, to sum it all up what is HDFC Bank's core?

Taking few risks and making money through the sure-shot ways.

We'll do a thread on how HDFC Bank operates and how they expanded this network across India soon.

Everything mentioned above is a part of personal view, do not take investing decisions based on this study.
Contact your financial advisor for further details.

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