Margin pressure and slower deposit momentum
- 3QFY24 net profit beats expectations but focus shifts to deposit growth
- Loan-to-deposit ratio (LDR) of 110% post-merger is a concern – the highest ratio among India’s private banks
- Management unveiled plans to list consumer financing arm and expand branch network
3QFY24 net profit beats expectations; focus shifts to deposit growth and high LDR. Post-merger with Housing Development Finance Corp (HDFC Limited), HDFC Bank’s net profit came in at INR163.7bn (+33.5% y-o-y/+2.5% q-o-q). Net revenue grew 25.8% y-o-y/4% q-o-q to INR396.1bn in 2QFY24. Net interest income improved to INR284.7bn (+23.9% y-o-y/+4% q-o-q) in the quarter driven by robust loan growth, though net interest margin (NIM) remained flat at 3.4%. Loan growth (+62.3% y-o-y/+4.9% q-o-q) surpassed deposit growth (+27.7% y-o-y/+1.9% q-o-q. LDR remained elevated at 110% (2QFY24: 107%), the highest ratio among India’s private banks. Non-interest income grew 31% y-o-y/4% q-o-q to INR111.4bn, attributed to higher fees and commission, foreign exchange and derivatives revenue, net trading and mark-to-market gain and miscellaneous income, including recoveries and dividend. Cost-to-income ratio remained largely unchanged at 40.3% in 3QFY24, a slight decrease from 40.4% in 2QFY24. There was a significant rise in provision during this quarter to INR42.2bn (+45.2%y-o-y/+50.2% q-o-q), attributed to the inclusion of a contingent provision of INR12.2bn pertaining to investments in alternative investment funds. The bank continues to maintain stable asset quality, with an improved NPA ratio of 1.26% (2QFY24: 1.34%). CET1 ratio remains strong at 16.3%.
Management unveiled plans for IPO and expansion of branches which should help sustain growth trajectory. Management has announced plans to list its non-bank consumer banking arm, HDB Financial Services. The IPO is set to take place in September 2025, with preparations commencing in the upcoming months. Additionally, management plans to expand its branch network significantly, aiming to have a total of over 13,000 branches in the next 3-5 years to boost deposit growth and improve customer accessibility, as investor concerns over slower-than-expected deposit growth remains.