Despite HDFC Bank's stable Q3FY24 performance, the bank's stock faced an 8% decline. The growth in advances and deposits, along with a healthy RoA and RoE, highlighted the bank's underlying strength. However, the bank saw an increased cost of borrowing, impacting NIMs, and a slowdown in CASA growth, posing short-term challenges.
Result Updates:
PAT was impacted by Rs. 1200 Cr provisioning done for the AIF exposure as per recent RBI guidelines, whereas PAT included profit from the Bandhan Bank stake sale that happened in this quarter. Retail advances grew 3.3% QoQ, primarily driven by strong performance in the mortgage business. The company added 908 branches over the last 12 months and 146 branches during the quarter.
How has the merger affected consolidated numbers for HDFC Bank?
HDFC Banks primarily relies on CASA franchise (44% pre-merger and 38% currently), whereas HDFC Limited relies only on borrowing and term deposits. Due to this, the cost of funds for the consolidated entity has increased to 4.9% from 3.5% in Dec 2022. Thus, NIMs have compressed to 3.4% from earlier 4.3%.
After the merger, the Loan to deposit ratio (LDR) for HDFC Bank stands at 110, without accounting for the merger the number stands at 89 from an earlier quarter LDR of 85.
(Source: Company reports, IEA = Interest earning assets)
Moneyworks4me Opinion:
Currently, HDFC Bank is facing problems on 2 fronts, pressure on NIMs caused by an increased cost of borrowing post-merger and the decreasing pace of growth in CASA to support the growth in lending. Competition has increased for CASA deposits and HDFC Management is currently not content to grow deposits at the cost of higher deposit rates. This would mean the NIMs which currently stand at 3.4% would need a few more quarters to recover. Management would eventually have to increase the deposit rates to remain competitive.
We feel that this is a 3-4 quarter phenomenon and would not affect the company's long-term fundamentals. Large-cap banks are fairly valued as against the overall highs that we are currently seeing in the market and thus there exists decent valuation comfort. We recommend investors stay invested and can also increase allocation if they are under-allocated in Banks.
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Funds ranking in screeners: Performance Consistency and Quality are two parameters used for ranking funds for SIP. The ranking as follows GG, GO, GR, OG, OO, OR, RG, RO and RR.
With the same color-coded funds, the one with the higher Average 3-year rolling returns (over 5 to 10 years), the number that appears in the Performance tag, ranks higher.
Here is the summary:
The third tag Upside Potential is not relevant for SIP. It is relevant for lumpsum investments in Mutual Funds.
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