NABARD vs HDFC
Rural Prosperity vs Urban Misery
Our scant capital cannot be frittered away.
As a country we have limited capital. This capital has to be invested for growth and progress. It cannot be used to fund luxury cars or fuel a real estate bubble. Last month an apartment was sold in Gurgaon for Rs 2 lacs per carpet square foot. And one bank financed 50% of it. Ai is not the bubble we need to be scared off. Banks financing melba at obscene prices is the bubble to fear.
Just one private bank has aggregated Rs 25 lakh crore of such loans. Close to half the loan book of SBI. And it is all deployed to fund unproductive assets. This bank has to be broken up is clear. It has to be de fanged and handcuffed so it ceases to be a massive systemic risk. It could take down the banking system, the indian currency and the stock market with it.
And all this risk is from one fatal mistake. HDFC Bank should have merged into HDFC Ltd and not the other way round. Holding cos take over subsidiaries. Not the other way around. But now that a breakup is imminent, what would you consider as the peak size for a private bank. I think Rs 10 lac crore loan book is the maximum a private bank should be allowed to hold. And deposits should be at most 150% of that.
Further loan shark behaviour has to be avoided. One particular bank can’t be allowed to lend Rs 2.5 lac crores at 50% pa to fund purchases like cell phones and foreign trips. In fact this is the only profit of HDFC bank. Remove credit card loot and there is no profit.
We have to divert money from the heated stock markets to entities like NABARD and away from systemic risks like HDFC.
NABARD and HDFC represent two very different ideas of development in India.
NABARD’s model channels credit into agriculture, MSMEs, self-help groups, irrigation, dairy, and rural infrastructure. Its success is measured in income stability, asset creation, and resilience in Bharat’s hinterland. Credit here circulates locally, multiplies livelihoods, and anchors people to productive work.
HDFC’s model, by contrast, is overwhelmingly urban and asset-price driven—home loans, consumption credit, and balance-sheet leverage concentrated in cities. Growth shows up as higher GDP and rising property values, but also as urban indebtedness, speculative housing inflation, and fragile middle-class balance sheets.
The contrast is stark:
• Rural credit (NABARD): cash-flow based, livelihood oriented, slower but regenerative
• Urban credit (HDFC): collateral based, asset-price dependent, fast but brittle
What looks like “financial sophistication” in urban India increasingly manifests as misery masked by EMIs, while what is dismissed as “subsidy-led rural finance” often produces real income growth and social stability.
The deeper question is which credit system actually improves human outcomes.
HDFC loan book cannot be larger than that of NABARD.
