The recent Jefferies Asia Forum shed light on the evolving landscape of the financial sector, showcasing insights from six prominent institutions, including banks, life insurance companies, fintech firms, and stock exchanges. Participants expressed optimism about growth prospects in deposits, loans, and asset quality while navigating regulatory uncertainties. Let’s dive deeper into the highlights from this engaging forum.

HDFC Bank: Anticipating Robust Growth

HDFC Bank is setting its sights high, predicting a remarkable 15% growth in deposits for the upcoming year, significantly outpacing the sector’s anticipated 11%. This growth is expected to be fueled by the establishment of new branches alongside the maturation of existing ones, directly impacting credit growth. The bank is on track to align with sector averages in FY26 and even surpass them in FY27.

• Loan-to-Deposit Ratio: HDFC Bank has successfully reduced its loan-to-deposit ratio (LDR) by 12 percentage points over the past year, now standing at 98%. While competition in housing finance is increasing, particularly from public sector banks offering lower rates, HDFC Bank remains confident in its personal loan portfolio.
• Merger Benefits: The merger with HDFC Ltd. has opened avenues for cross-selling banking products to mortgage customers, significantly boosting profitability.

IDFC First Bank: Overcoming Microfinance Hurdles

IDFC First Bank acknowledged facing challenges within the microfinance sector due to recent regulatory changes in Karnataka, which impacted collection efficiency early this year. However, the bank is witnessing a promising recovery, with overdue loan ratios stabilizing in March.

• Credit Costs: Elevated credit costs are anticipated in Q4 FY25, mainly attributed to microfinance losses. The bank plans to reduce its microfinance exposure from 5%, which may pressure margins but is expected to enhance long-term stability.
• Asset Quality: Outside of microfinance, IDFC First Bank reports strong asset quality and growth in other sectors, with healthy deposit mobilization.

Life Insurers: Adapting to Regulatory Changes

HDFC Life and ICICI Prudential Life are closely monitoring potential changes in bancassurance regulations, with expectations for a decision soon. They anticipate a transition period if new norms are implemented.

• Impact of Regulatory Changes: The proposed extension of the free-look period from 30 days to one year is expected to have limited effects, as insurers can reclaim commissions on surrendered policies. The industry anticipates a 12-15% premium growth, with HDFC Life aiming to outperform its competitors.
• Sales Performance: ICICI Prudential Life has noted a slowdown in Unit Linked Insurance Plans (ULIPs), which may impact operational efficiencies, yet remains confident in managing any regulatory changes.

Paytm: Strengthening Merchant Services

Paytm is experiencing significant success in its merchant services, which is positively impacting overall profitability. While retail lending volumes have seen a decline, the company is primarily acting as a distributor for personal loans, thus reducing its role in loan collections.

• Future Prospects: The introduction of a merchant discount rate (MDR) on UPI payments is a critical development to watch. Additionally, Paytm is expanding its wealth management services, focusing on mutual fund distribution and broking to deepen client engagement.
• Retail Lending Outlook: Although retail lending volumes are currently under pressure, there is cautious optimism for improvement in the upcoming quarters.

BSE: Strategic Growth Approaches

The Bombay Stock Exchange (BSE) is evaluating the potential effects of proposed open interest limits and is taking a measured approach before making any adjustments. The recent change in the derivatives expiry date by the NSE may influence market dynamics.

• Focus on Liquidity: BSE management is keen on enhancing liquidity in monthly options contracts and is actively collaborating with global banks to boost participation in this segment.
• Co-location Opportunities: The co-location business provides significant growth prospects, with improved operational efficiencies enhancing the exchange’s competitiveness.

Conclusion: Navigating Uncertainties with Optimism

The Jefferies Asia Forum highlighted a prevailing sense of optimism among key financial institutions, despite facing regulatory challenges. HDFC Bank and IDFC First Bank are focused on deposit growth and maintaining asset quality, while life insurers brace for potential regulatory shifts. Paytm’s merchant business continues to thrive, and BSE works on enhancing market liquidity and technology. These institutions are strategically positioning themselves for sustainable growth by leveraging regulatory support and emerging market opportunities.