HDFC is a bank which is a commodity business. Best banks are those which contain non-performing assets which HDFC Bank has done superbly over the years.
Universal banks in India need to have only one strategy, reduce the cost of funds while managing risk in loans book.
HDFC’s merger with the bank has increased its CD ratio >100% and it is putting pressure on the bank to increase its deposits at a time when there is a competition among the bank’s to garner deposits. Their timing is unfortunate. However, these are 2-3 quarter issues.
Private bank’s (and quality NBFCs such as Bajaj Fin) underperformance in last three years mean now they offer very good value in a very overvalued market. Their balance sheets have continued to grow, without increase in NPAs. They are well capitalised.
I think it is a time to get into these businesses (HDFC, Kotak, Bajaj etc), not out. Off course nobody knows when they will catch fancy of the market, they still remain great franchises available at fair prices.
Dis.- Invested in Kotak, HDFC Bank, Bajaj Fin
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