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.