HDFC Bank’s Stellar Performance in Q3 FY24
HDFC Bank, the leading private sector lender in India, announced a remarkable 33% year-on-year increase in net profit, reaching ₹16,372 crore for the third quarter of FY24. Moreover, the bank’s net interest income (NII) soared by 24% year-on-year, totaling ₹28,470 crore in Q3FY24.
Growth and Financial Indicators
During the third quarter, HDFC Bank observed a 4% quarter-on-quarter growth in loans, while its deposits saw a 2% increase. Notably, the Liquidity Cover Ratio (LCR) dipped to 109.8% from the previous quarter’s 120%, owing to the liquid asset drawdown to support the loan expansion. The bank’s loan-to-deposit ratio (LDR) also ascended from 108.4% to 110.5% quarter-on-quarter. Furthermore, the standalone LDR for HDFC Bank was 89% in Q3FY24, an improvement from 85% in Q1FY24.
Enhanced Asset Quality
HDFC Bank exhibited an enhancement in its asset quality, with Chief Financial Officer Srinivasan Vaidyanathan emphasizing the bank’s historical track record of improving asset quality.
Management’s Call Insights
During the earnings call, HDFC Bank’s management emphasized crucial aspects such as deposits, margins, distribution network, and the potential listing of subsidiary HDB Financial Services. Here are five key highlights from the management’s call:
- Deposits: The management highlighted the strategic focus and performance pertaining to deposits.
- Margins: Insights were shared on the bank’s margin management strategies.
- Distribution Network: The management discussed the expansion and efficacy of the bank’s distribution network.
- Listing of Subsidiary HDB Financial Services: Considerations and plans regarding the potential listing of the subsidiary were deliberated upon.
- Additional Insights: Other noteworthy points raised during the earnings call were further detailed.
HDB Financial Services IPO Preparations Underway
HDFC Bank’s Chief Financial Officer, Srinivasan Vaidyanathan, highlighted the bank’s timeframe until September 2025 to list its non-bank finance subsidiary, HDB Financial Services. Emphasizing that preparatory work for the IPO will commence soon, Vaidyanathan shed light on the forthcoming strategic move.
Ownership and Operational Insights
With a substantial 94.7% stake in HDB Financial Services Ltd, HDFC Bank oversees the operations of the non-deposit-taking NBFC, which offers a diverse portfolio of loans and asset finance products.
Financial Performance
In the quarter concluding on December 31, 2023, HDB Financial Services recorded a net revenue of ₹23.5 billion, marking a notable 5.0% growth from ₹22.3 billion in the corresponding period in 2022.
Liquidity and Balance Sheet Management
Addressing liquidity concerns, the CFO outlined plans to decrease the Loan-Deposit Ratio (LDR). Consequently, going forward, incremental loans will be entirely supported by deposits, with a focus on accelerating deposit growth surpassing loan growth. Additionally, although the Liquidity Coverage Ratio (LCR) has dipped below 110% due to excess liquidity drawdown, the bank aims to sustain it within the range of 110-120% in the future.
Loan and Deposit Focus
HDFC Bank’s management has underscored the exceptional profitability of its retail unsecured products and expressed its intention to fortify this segment. Notably, the delinquency and non-performing assets (NPAs) in this area outperform those of secured products, fostering management’s target of achieving a robust 17-20% growth in this segment. Furthermore, the bank aims to augment the proportion of non-mortgage retail loans, considering these to be incrementally margin-accretive.
Liquidity and Deposits Dynamics
Identified as a primary hindrance to deposit growth, HDFC Bank’s management points to the prevailing deficit in system liquidity. Nevertheless, the bank is concurrently securing incremental market share despite this constraint. The disparity between the growth rates of Savings Account (SA) and Current Accounts (CA) deposits is attributed to a prevailing preference for term deposits over SA deposits, coupled with a faster surge in customer expenditures compared to the accumulation of customer balances. Anticipating a reduction in customer spending in forthcoming quarters, management expects an amelioration in the CASA ratio.
Amplified Distribution Infrastructure
In the third quarter of FY24, HDFC Bank augmented its branch network by 146, culminating in a total of 8,091 branches. With an additional 570 branches in the pipeline, the bank anticipates a potential total of 1,000 branches by the conclusion of FY24. Strategic branch augmentation will not solely focus on quantity but also seek to enhance the bank’s geographical footprint by judiciously balancing urban and non-urban branch expansions.
Asset Quality Fortification
The bank exhibited a decline of 8 basis points, resulting in a gross non-performing assets (GNPA) ratio of 1.26% in Q3 FY24, with 15 basis points attributable to standard assets. In Q3 FY24, the slippage ratio stood at 26 basis points (non-annualized) or ₹70 billion. Notably, recoveries and upgrades amounted to ₹45 billion, with write-offs totaling ₹31 billion. Furthermore, no NPA sales were executed during the quarter. As of Q3 FY24, the total provisions, encompassing contingent and floating provisions, amounted to ₹154 billion, underscoring the bank’s commitment to maintaining robust asset quality.
