EXECUTIVE SUMMARY. The sharp slowdown in the Indian economy and the wide publicity to the production cutbacks and layoffs in the automobile sector have cast the spotlight on the retail sector of banking. The business model of HDFC Bank, India’s largest bank by market capitalization, is firmly wrapped around the retail sector. On the assets side, the bank has focused on unsecured retail loans to drive its profitability, and its fees are also dominated by retail. In such a scenario, the bank continues to aggressively pursue unsecured retail loans, and the rise in the bank’s credit costs in 1QFY2020 has shaken investor confidence. To date the bank has been able to contain the retail NPAs through aggressive write-offs from its huge net interest margin (NIM) and considerable retail fees. It remains to be seen whether the bank can continue this strategy when the retail sector is going to bear the brunt of the slowdown, even as a new, as yet unidentified, CEO takes charge around mid-2020.
