HDFC Bank may face margin, net worth hit
MUMBAI : HDFC Bank Ltd expects a worsening of net interest margin (NIM), net worth and asset quality in the short term following its merger with parent Housing Development Finance Corp. (HDFC), analysts who attended a meeting with a top bank executive said. NIM may narrow 25 basis points (bps) due to the combined effect of incremental cash reserve ratio (CRR) and excess liquidity, analysts cited chief financial officer Srinivasan Vaidyanathan as saying at the meeting.
Before the merger, HDFC had built an excess liquidity buffer of close to ₹1 trillion. Some analysts expect the bank’s earnings in the second quarter to lower due to these changes. The merged entity’s margin is estimated to have fallen to 3.7-3.8% at the end of June 2023 compared to the bank’s standalone margin of 4.1% in the same period.
Foreign brokerage Macquarie said this could have an impact on the bank’s near-term return on assets (RoA). “RoA could be lower by 10-15bps in the near term. It will take around 2-3 quarters for the bank to recover its RoA as per management," said Suresh Ganapathy, head of financial services research, Macquarie Capital Securities (India) Pvt.
Ltd. HDFC Bank told analysts that non-performing assets (NPA) on HDFC Ltd’s real estate book jumped to 6.7% as of 1 July 2023 from 2.9% on 31 March. The merged entity’s gross non-performing asset (NPA) is therefore higher at 1.4% as of 1 July, compared to the bank’s gross NPA of 1.2% in June.
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