HDFCBANK Q4 Call Highlights: Rate Cut Impacts, NPA Stability and Deposit Momentum!

HDFC Bank Ltd, India’s largest private sector lender, in its Q4 earnings call discussed margin management amid changing interest rates, explaining that rate cuts immediately affect lending but cost of funds adjustments lag behind. The company detailed how CASA ratios typically move inversely to policy rates and outlined their LDR strategy targeting pre-merger levels by FY27. Management emphasized maintaining credit quality over growth, with a focus on gaining market share across deposit segments while keeping their risk appetite consistent. Management also noted their non-performing assets have remained historically stable despite industry credit cycles, attributing this to disciplined customer segmentation and relationship-based banking approach.

HDFC Bank reported a 6.7% year-on-year increase in standalone net profit for Q4, surpassing analyst estimates. Net interest income (NII) grew 6% year-over-year to INR32,071 crore, driven by a 9.3% year-over-year rise in interest income, though operating profit fell 9% year-over-year due to higher expenses. The core NIM improved to 3.54% on total assets, reflecting stable margins. Asset quality enhanced, with gross NPA at 1.33%, down from 1.42% quarter-over-quarter and net NPA at 0.43%, down from 0.46% quarter-over-quarter. Total deposits grew 15.8% year-over-year to INR25,280 billion, with CASA deposits up 5.7% year-over-year, though the CASA ratio dipped to 38.2%. Over the last quarter, HDFC Bank focused on deposit mobilization to lower its credit-deposit ratio, maintained stable margins despite competitive pressures. The bank aims to achieve a pre-merger credit-deposit ratio of 85-90% by FY27, leveraging strong retail loan growth opportunities.

Continue Reading: Unearth the Vital Insights from HDFC Bank Ltd’s Earnings Call!

Financial/Operational Metrics:

• Revenue: INR120,269 crore, down 3% YoY.
• Net Income: INR18,835 crore, up 7% YoY.
• EPS: INR24.62, up 6% YoY.
• NII: INR32,071, up 6% YoY.
• Average Deposits: INR25,280 billion, up 15.8% YoY.

Outlook:

• Loan Growth Target: Grow loans in line with industry levels in FY26–27.
• Credit-to-Deposit Ratio: 85-90% by FY26–27.

 

 

Analyst Crossfire:

• Net Interest Margin (NIM) Drivers and Outlook (Chintan Joshi – Autonomous)? NIMs remained stable at 3.46% in Q4, up from 3.44% YoY, operating within a narrow 3.4-3.5% band, supported by a reduced borrowing mix, down to 14% from 21% in Dec 2023, despite headwinds from a shift to time deposits. Yield on assets was stable at 8.3-8.4%, managed through selective retail lending, with no specific NIM outlook provided due to policy rate uncertainties (Srinivasan Vaidyanathan – CFO).

 

• Deposit Growth and Liquidity Position (Mahrukh Adajania – Nuvama)? Deposit growth of 15.8% YoY was driven by distribution reach and customer engagement, not rate competition, with recent rate cuts by large banks reflecting policy transmission rather than competitive shifts, ensuring confidence in sustained deposit growth amid improved system liquidity (Srinivasan Vaidyanathan – CFO).

 

• Commercial and Rural Banking Reorganization (Anand Swaminathan – Bank of America)? The commercial and rural banking (CRB) segment underwent a reorganization, with Roy Shukla on sabbatical, integrating agriculture with retail products (e.g., two-wheeler, auto, gold loans) under one team to enhance customer engagement and productivity in 225,000 villages, led by Kaiser to optimize yields and synergies (Srinivasan Vaidyanathan – CFO, Sashi Jagdishan – CEO).

 

• Repo-Linked Loan Repricing and Margin Impact, AIF Provision Clarifications (Rikin Shah – IIFL)? Repo-linked loans, such as mortgages, about 30% of the book, reprice within a month, while corporate loans reprice immediately or quarterly based on contracts, with the number of days in a quarter impacting margins by about 2 basis points. AIF-related provisions dropped to INR288 crore from INR350 crore QoQ due to maturities and reduced requirements, with no significant P&L impact as a net ₹60 crore provision was added for other reasons, following a INR1,200 crore provision reversal in FY24 after RBI clarification (Srinivasan Vaidyanathan – CFO).

 

• CASA and Savings Account Market Share Outlook, Credit Growth and NPA Cycle Outlook (Harsh Modi – JP Morgan)? CASA and time deposit market shares are abot 10.5-11.5%, with opportunities to grow through customer relationships and low time deposit penetration, aiming for incremental savings account market share gains over 18-24 months, contingent on disposable income and market conditions. Industry credit growth may have bottomed out 3-4 quarters ago, with NPAs expected to normalize at lower historical levels; HDFC Bank’s stable NPA band and segmented customer approach ensure credit losses remain range-bound despite growth (Srinivasan Vaidyanathan – CFO, Sashi Jagdishan – CEO).

 

• Term Deposit and Borrowing Maturity (Param Subramanian – Investec)? Term deposit maturity details are unavailable until the annual report, but ~₹0.5 trillion in legacy bond borrowings will mature in the next year, with 60–65% of borrowings hedged; the borrowing mix (14% of liabilities) aims to return to pre-merger 8–9% via cost-effective infrastructure borrowings (Srinivasan Vaidyanathan – CFO).