HDFC Bank Limited Q2 FY24 Earnings Conference Call Insights

Key highlights from HDFC Bank Limited (HDFCBANK) Q2 FY24 Earnings Concall

• Merger With HDFC Limited
  • Incremental liquidity and CRR requirements post-merger had a 25 bps impact on NIMs.
  • HDFC Ltd’s non-retail book saw a slight increase in NPAs due to the restructuring of one account, but this will not significantly affect the overall gross NPAs.
  • The bank will not incur incremental costs/losses from this book going forward given security cover and provisions already made.
• Strong Business Momentum
  • Deposits grew by INR1.1 lakh crore, translating to 5.3% growth sequentially on an apples-to-apples basis.
  • Loan growth was INR1 lakh crore, 4.9% sequential growth, annualized at 19.6%.
  • NIMs, ROA and ROE were largely maintained despite merger impacts.
  • HDFC Ltd’s team achieved a record INR48,000 crore in retail mortgage disbursals, indicating potential for further growth.
• Focus Areas Going Forward
  • Expand branch network, payment acceptance points, rural reach.
  • Ramp up loan processing in branches.
  • Acquire new liability customers and deepen relationships.
  • Grow cards business and maintain deposit granularity.
  • Substitute high cost bonds with low cost deposits.
  • Grow retail mortgages by leveraging HDFC Ltd capabilities.
  • Launch digital journeys for product bundling.
  • Deliver consistent growth in core operating metrics.
• Bank Financials
  • Net interest income grew 30% over prior year to INR27,385 crores.
  • Net interest margin was 3.4% on total assets due to merger related excess liquidity.
  • Other income was INR10,708 crores, up 19.5% driven by fees and commissions.
  • Operating expenses were INR15,399 crores, cost to income ratio at 40.4%.
• Margin Recovery Timeline
  • Margin recovery is expected to take some time.
  • Management is focused on optimizing asset mix, particularly shifting towards retail loans, to improve margins.
  • The choice of longer-term funding as part of merger management will also influence margin recovery, and it may take a few quarters to return to normal levels.
• Deposit Mobilization
  • HDFC Bank has mobilized over INR1 lakh crore in deposits this quarter.
  • Retail deposits comprise 83-85% of the total deposits mobilized.
  • The bank has opened 2,200 new branches in the last 2 years which will help further grow deposits going forward.
  • Most branches opened 2 years ago have achieved breakeven as per expectations.
• Credit Growth
  • Construction finance book is a growth focus area for the bank.
  • Risk framework in place to grow construction finance portfolio.
  • Overall corporate loan book will be grown based on risk assessment of exposures to various corporates.
• Synergies With HDFC Ltd
  • Significant improvement in sales processes and support across branches.
  • Faster turnaround times for product fulfillment leading to greater confidence in cross-selling.
• Liquidity and Funding
  • The bank’s LCR was at an average of 121% after absorbing the incremental CRR for most of the quarter.
  • Over two-thirds of HDFC Limited’s deposits are from retail, with the rest being wholesale deposits that will gradually be replaced with more detailed retail deposits.
  • The excess liquidity from the merger led to a 25 basis point impact on margins this quarter.
  • Margins are expected to normalize over the next few quarters as the bank grows into the excess liquidity.
• Loan Growth and Branch Expansion
  • Loan growth was at 23% YoY, driven by retail loans.
  • The bank plans to expand high-yield retail loans, including personal loans, credit cards, auto loans, and microfinance, to counterbalance the margin impact of excess liquidity.
  • 500 new branches were opened in Q2, mostly back-ended in the quarter.
  • The bank aims to increase its branch distribution share from 4.5% to 5% and align its deposit market share with this distribution share.