HDFC Bank Limited Q1 FY 23 Research Tear Sheet

HDFC Bank Limited is an Indian banking and financial services company. It has its headquarters in Mumbai, Maharashtra. It was incorporated on August 1994. It was among the first to receive approval from the Reserve Bank of India (RBI) to set up a private sector bank. HDFC Bank has a banking network of 6,378 branches and 18,620 ATMs in 3,203 cities/towns. As on 30.06.2022, total number of employees is 152,511.

Services Provided- The services provided by  HDFC bank includes Personal, NRI, SME, Wholesale and Agri.

Personal- It provides the following facilities to its customers which include Mobile banking, Online Banking, In Person Banking, Phone Banking, Watch Banking, Social Media Banking and SME Digital. The Mobile banking system helps the customer to access the banking services through the mobile app. NetBanking provides the facility to access the Banking Service 24*7 from home or office. Customers can remit money, check their loan statement, pay credit card bills and many more. In Person Banking means customer can visit the branch offices, access lockers, access ATM, Cash deposit Machines. Watch banking provides the facility to enjoy banking on an Apple smart watch. Social Media Banking provides the facility of recharging phones, paying DTH bills, booking Ola, Uber. The SME Digital provides the facility  to operate your cash credit account. Upload documents digitally to save time, request for enhanced limits, enquire about the status of transactions. It also helps by providing UPI payment facility.

NRI- HDFC bank provides NRI accounts like savings, current, salary and Fixed deposit accounts. It also facilitates by opening  foreign currency deposit and  offshore account.

SME- HDFC bank provides loan facility to small and micro SME and MSM. It helps them to get credit for their startup. HDFC bank provides wholesale banking service to large clients, such as other banks, other financial institutions, government agencies, large corporations, and real estate developers. It provides facility like Export Credit, Cash Management, Project Appraisal structured finance, Custodial & Depository Service.

Agri- HDFC Bank supports the Kisans of India and  provides agricultural loans. Different loans provided by HDFC bank includes Kishan Gold Card Agri Loan, Tractor Loan, Small Agri Business Loan, Horticulture loan. The HDFC bank helps the farmer to avail exclusive savings accounts.

Financial Snapshot (₹ crore)

(₹ crore)	Q1 FY 23	Q1 FY 22
Net Interest Income	19,481.40	17,009.00
Net Profit	9,196.00	7,729.60
Total Advances	13,95,068	11,47,652
Fees & Commission	5,360.40	3,885.40
Total Deposits	16,04,760	13,45,829
Total Advances	13,95,068	11,47,652

The Bank’s core net revenue (excluding trading and Mark to Market losses)increased  by 19.8% to ₹ 27,181.4 crore. The total net revenues stood at ₹ 25,869.6 crore. Net interest income improved by 14.5% to ₹ 19,481.4 crore. Operating expenses increased by 28.7% to ₹ 10,501.8 crore. Pre-provision Operating Profit increased by 14.7% to ₹ 15,367.8 crore. The bank has recorded Provisions and contingencies for ₹ 3,187.7 crore. Profit before tax (PBT) stood at ₹ 12,180.1 crore, it improved by 18.2%. Net profit  for the quarter is  ₹ 9,196.0 crore, grew 19.0%.

Total Deposits grew by 19.2% to ₹ 1,604,760 crore. CASA deposits grew by 20.1%  to ₹ 514,063 crore. Time deposits improved by 18.5% to ₹ 870,113 crore. Total advances increased by 21.6% to ₹ 1,395,068 crore.

Strength, Weakness, Opportunities & Strength

Strength-It is one of the leading private sector bank. It has 18,620 ATMs in 3,203 cities/towns. It has 152,511 employees in total. HDFC bank has large collaborations with corporates and provides salary accounts. It offers several services like online banking, app, mobile banking, NRI services.

Weakness- The bank has very less presence in the rural area. The bank mainly works on high end consumers, it should also focus on other customers as well.

Opportunities-The bank should focus more on the expansion of rural areas. It should focus on good overseas opportunities. HDFC Bank, being a leader in retail lending, can make the best out of this opportunity.

Threat- Competitors entering the markets, they are providing fixed deposits and loans at competitive rates. Different rules and regulations by the government is impacting the banking business. Cyber attacks and cyber frauds also impacting the image of the bank. They are losing their customer confidence. Economic crisis impacts the liquidity of the business. The customers are less inclined in investments which as a whole are creating a hindrance for the banking business.

Industry Analysis

In the current scenario the demands for banks have increased due to Increase in working populations and growing disposable income. The banks are inclined more towards digital innovation. Banks with lower NPA and High net interest margins are preferable in the Industry. The Indian banking system consists of 12 public sector banks, 22 private sector banks, 44 foreign banks, 43 regional rural banks, 1,484 urban cooperative banks and 96,000 rural cooperative banks. The Indian banking has moved to digital banking. The digital payments revolution has triggered a massive change in the entire lending/borrowing procedure.

Impact of COVID-19 on the Banking Sector

The banking system in India has been affected by the pandemic. The government of India introduced the moratorium system during COVID-19. The RBI also decreased the repo rate and reverse repo rate. This hampered the overall revenue of the bank. Moreover Borrowers and businesses face job losses, slowed sales, and declining profits. Both the economic system and financial systems are hampered. The impact affected the GDP growth.

HDFC bank has a P/E ratio of 19.72 which is against the industry average of 18.71. The comany’s P/B ratio is 3.03 which is against the industry average of 2.03. The dividend yield policy is 1.15% which is against the industry average of 0.97. The board of directors has recommended a dividend of Rs 15.50.  The Gross NPA increased to 0.35% from 0.32%. Net NPA increased to 1.28% from 1.17%. The capital adequacy ratio is 18.1% compared to 11.7% which is the regulatory requirement.

Impact of  Digitization on Banking sector

After COVID-19, banks have moved toward digitization.The customers prefer online banking over in-person banking. The bank processes are now conducted with much more ease.The Banking system flaunts some user friendly apps for its customers. Digitization has brought cost effectiveness to the industry. It has enabled easy and super-quick cashless transactions. It provides a secure way of Cybersecurity, which is also important in banking.

A Study on HDFC Vs ICICI

	ICICI	HDFC
Market Cap ( ₹ Crore)	523, 887.64	7,61,086.71
P/E Ratio	25.28	21.69
P/B Ratio	3.28	3.31
Dividend Yeild	0.26	0.46
CASA %	46.29	46.12
ROE %	12.56	16.61
ROCE %	10.44	14.51

On the basis of the study from an investor perspective, higher the ROE is better for the company. Here HDFC will be more preferable. The P/E ratio is used to determine if the company is overvalued or undervalued. Lower P/E ratio is better for investors so here also HDFC is more preferable. Similarly P/B ratio measures the market value of the company relative to its book value. The P/B ratio is used by investors to check the investment opportunities. A P/B ratio under 1 is considered ideal for an investor. Here we can see that P/B ratio of ICICI bank is 3.28 and for HDFC is 3.31.If we do an analysis on 5 Year CAGR return we will find HDFC bank is 12.4% whereas for ICICI bank it is 25.6%.

Merger & Acquisition– HDFC has decided to merge with HDFC bank. The board has approved the merger of its wholly owned subsidiaries HDFC Investments Limited and HDFC Holdings Limited with HDFC Bank Limited. HDFC Bank will make an all-stock offer for 100% of parent HDFC. The $60 billion transaction deal is the world’s second-biggest so far this year. The HDFC group confirmed that  the merger would require some regulatory approval which could take 14-18 months. So it is expected  the deal is likely to be completed by the end of FY24.  For every 25 shares held, HDFC will offer 42 shares. Hence the swap ratio will be 1.:1.68.

Revenue from Subsidiaries- The two major subsidiaries of HDFC bank is HDFC Securities Limited (HSL) and HDB Financial Services Limited (HDBFSL). HDFC holds 95.0% stake in HDBFSL. HDBFSL’s net revenue increased by 13.0% to ₹ 2,193.8 crore. As on 30.06.2022 HDBFSL had 1,403 branches across 1,007 cities / towns. It holds 96.0% stake in HSL. HSL’s total revenue stood at ₹ 432.5 crore. Profit after tax for the quarter is  ₹ 189.3 crore.  HSL had 216 branches across 147 cities / towns in the country.

Segment-wise Revenue

Treasury division decreased by 14.6% Y-o-Y to ₹7,379 crore. In Retail Banking Sector the revenue increased by 17.4% Y-O-Y  to ₹ 31,685 crore. In Wholesale Banking the revenue increased by 29.4% Y-O-Y  to ₹ 18,642 crore. Other Banking operation stood at ₹ 8626crore.