India’s largest private sector bank
We have been shareholders of HDFC Bank, India’s largest private sector bank, in our Indian Subcontinent portfolios for close to two decades. It has consistently gained market share at the expense of state-owned banks which are plagued by asset quality and capital adequacy issues.
State-owned banks continue to make up almost 70% of the Indian banking system. This, along with a large under-banked population in India, provides a long-term growth opportunity for HDFC Bank - an example of how high quality private banks should benefit from financial inclusion in India.
It has delivered industry-leading returns over the last two decades, while consistently focusing on risk management. Their earnings per share (EPS)1 has compounded at 23% CAGR2 over this period. The true test of this has been amidst the pandemic, which HDFC Bank sailed through smoothly, with asset quality relatively well maintained.
The management team is highly experienced, and the recent transition to new CEO Sashidhar Jagdishan has been quite seamless. The strength of their organisation and processes shows in the total shareholder returns in the order of 22% CAGR over twenty years in US$ terms.
1. Earnings per share (EPS) is calculated as a company's profit divided by the outstanding shares of its common stock
2. Compound annual growth rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer than one year.
Source: HDFC Bank Annual Reports, Indian Banks Association, Bloomberg, as at May 2021.
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