On the basis of indicators such as oil consumption, electricity consumption, e-way bill and toll collections, along with capacity utilisation of companies in auto, steel, FMCG sectors, HDFC Bank managing director Puri concluded that the economy “appears to have recovered sharply from April” during the bank’s Q1FY21 earnings call on July 18. However, this recovery could see moderation in future because some of this is “pent-up demand from the lockdown phase that could lose steam”, steady rise in infections and greater dispersion of cases across the country remain policy challenges, and partial lockdowns across the country could throttle full recovery.

Significantly, Jimmy Tata, HDFC’s group head and chief risk officer, acknowledged that even before the COVID-19 crisis hit, “there was a slowdown in the economy for a good 18-24 months”. HDFC is at least the third company to acknowledge that the economy was already in a weakened state before the pandemic’s onset, followed by similar admissions from B2B platforms Just Dial and IndiaMART, which said that an already weak economic situation was only exacerbated by the pandemic. The financial turmoil of the last couple of years had hit SMEs the most.

  • Corporate collections reflect recovery in telecom, agriculture, pharma: In April, because of the lockdown, Rahul Shukla, group head of corporate banking, business banking and healthcare finance, said that HDFC believes “that there was simply no activity” and corporate collections in April 2020 were 45% of what they were in April 2019. Corporate collections in June 2020, however, were 94% of what they were in June 2019. Telecom, agriculture and fertilisers “showed significant strength over the year ago period” while pharmaceuticals also showed a positive growth, according to the company.

Payment business volumes recover to 70% of January 2020 levels

Both acquiring and issuance volumes saw this 70% recovery, thereby suggesting that we could see a similar rate of recovery across the banking sector, as per HDFC.

Online transactions skewed towards low-ticket, high frequency spends: Transactions were skewed towards daily essentials, medical expenses, food home delivery, that is, “low-ticket spends with high frequency”, that led to higher levels of customer engagement on payment instruments, Puri said. Higher spending on travel, hospitality, etc. dampened but spending on online education, subscription services, e-commerce grew faster than offline payments.

Credit cards dropped by 87% while spends fell by 40%: In addition, the economic slowdown has led to a decrease in use of credit and debit cards cards by customers, loan originations, sale of third party products, efficiency in collection efforts and waiver of certain fees, the bank revealed in its financial results.

Electronic straight through processing (STP) transactions grew across board

In corporate banking, percentage of electronic STP transactions grew in collections and payments businesses from 86% in June 2019 to 94% in June 2020. Shukla said that payments have always had a strong STP percentage, collections saw a jump in electronic STP from 82% in June 2019 to 92% in June 2020. 

In wholesale SME business, percentage of electronic STP transactions grew from 68% in June 2019 to 79% in June 2020. Percentage of STP collections in particular grew from 56% in June 2019 to 74% in June 2020.

STP is an automated electronic payment process that is used by corporations and banks that makes the entire payment process free of human intervention. According to SEBI, it uses a single system or a process or a control to handle all the elements of a financial transaction.

Video KYC is here to stay, staff reallocated to collections

HDFC had launched video KYC on a limited pilot basis through customer relationship management (CRM) on mobile engagement. This enabled “100% digital full KYC accounts”, Puri said. In Q2FY21, the bank will scale up this capability. Similarly, call engagements via virtual relationship management (VRM) have increased to 22 per day from 18 per day in April. Even as lockdowns are lifted across the country, HDFC will retain the option to onboard current account holders digitally and carry out video KYC, Puri said.

Relying on phone calls and video conferences for customer interactions: The bank saw 225,000 customer interactions per day “with higher salience towards telephone or video”, Puri said. In Q1FY21, the bank acquired 1.2 million liability customers and about 13,000 accounts per day, reflecting 80% of Q1FY20 levels.

Reallocated staff to collections: During the earnings call, Puri emphasised at least twice that the bank had no layoffs and gave its employees full salaries, bonuses and increments. Excess sales staff was moved to collections. Tata said that 20,000 additional employees from sales, credit underwriting were allocated to collections which can be done in a work-from home environment.

  • Gave incentives to collections agencies in semi-urban, rural areas so that they could retain their staff.
  • 50% of phone banking and telesales resources could not be deployed from home.

Financial numbers

  • Net revenues: ₹19,740.7 crore, 8.1% YoY growth from ₹18,264.5 crore in Q1FY20
  • Net interest income: ₹15,665.4 crore, 17.8% YoY growth from ₹13,294.3 crore, 3% QoQ growth
  • Operating expenses: ₹6,911 crore, 2.9% YoY decrease from ₹7,117.3 crore in Q1FY2020
  • Net profit: ₹6,658.6 crore, 19.6% YoY growth from ₹5,568.2 crore in Q1FY20

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