HDFC Bank Q2 Results Preview: Margin contraction seen after merger; here’s what to expect

livemint.com:

HDFC Bank after it was merged with mortgage lender Housing Development Finance Corporation (HDFC) effective July 1. The overall banking sector is expected to see healthy credit growth in the quarter ended September, but margins are likely to compress due to cost catch-up and the impact of Incremental Cash Reserve Ratio (ICRR). Analysts expect the creation of excess liquidity could affect the net interest margin of HDFC Bank in Q2FY24.

However, margins should bounce back in H2FY24 as credit growth picks up and liquidity is utilized. Also Read: HDFC Life Q2 Results: Net profit grows 15% YoY to ₹378 crore According to Emkay Global Financial Services, HDFC Bank is expected to be hurt by sharp margin contraction post the merger. In its quarterly business update, HDFC Bank reported a robust 57.7% growth in its gross advances at ₹23.54 lakh crore as of September 30, 2023, rising from ₹14.93 lakh crore last year.

Its deposits aggregated to approximately ₹21.73 lakh crore in Q2FY24, a growth of around 29.9% over ₹16.73 lakh crore as of September 30, 2022. Read here: HDFC Bank Q2 Update: Advances grow 57% to ₹23.54 lakh crore, home loans rise 10% YoY after merger Emkay Global estimates HDFC Bank’s net interest income in Q2FY24 at ₹27,874 crore, up 8.6% YoY and down 3.6% QoQ. Net interest margin (NIM) is expected to be at 4.1%, down 5 bps sequentially and up 9 bps YoY.

The brokerage expects the bank to post a net profit of ₹6,045 crore in the September quarter. “After a sharp margin downtrend in the past two quarters, the bank expects margin contraction to be contained in Q2. This coupled with contained provisions is expected to support profitability.