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Monday, August 15, 2011

HDFC(the FI not the bank) the LCC of banking

HDFC Bank has the employer branding of low paying but with a solid work ethic. This philosophy seems inherited from its parent HDFC Ltd, India's premier housing finance corporation, which has now diversified into insurance, student loan lending etc. Consider these facts
  1. As mentioned in the FY11 AGM speech, to print a 152 page annual report(http://www.hdfc.com/pdf/Annual_Report_2010_11.pdf) costs HDFC just Rs 26.16/copy, which seems quite frugal to me. 
  2. Cost to Income ratio hovers around 8%(this year is was 7.7%), among the lowest in Asia. This however, is because only 16% of its loans are directly originated(which need branch/employee costs etc). The remaining loans are through DSAs/affiliates/HDFC Bank, which bear their own overheads. The brokerage which HDFC pays them(partly towards organization costs) are not included in this Cost to Income ratio, but are set off against interest income. Still, considering that HDFC does all the credit appraisal, monitoring and followup itself, this ratio is quite commendable. 
This cost focus is perhaps why HDFC can afford a 43% dividend payout ratio.

While there is an explanation for the low cost/income ratio, I cannot imagine why a reputed printer like Infomedia18 would charge so low for the annual report. Professionals in the IR dept of companies, please comment on this number whether it is on par or lower than normal!

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