HDFC Bank’s Q1 is healthy; merger synergies to ease margin pressure
₹16.15 trillion, mostly driven by its retail loan book, which rose by 20% y-o-y. This momentum expected to persist in the coming quarters, too. Investor enthusiasm, however, appears to be on the wane with the bank’s shares sliding by nearly 3% during market hours on Wednesday.
Analysts attribute this to the less-than-stellar sequential performance. Overall loan book in Q1 registered a modest 0.9% quarter-on-quarter (q-o-q) growth due to sluggish corporate loans growth. Corporate and wholesale loan book remained stagnant, while retail and commercial and rural banking segment saw 4% and 2% sequential growth, respectively.
On 1July, HDFC Bank successfully merged with HDFC Ltd. The combined entity reported a 13.1% y-o-y loan growth to ₹19.8 trillion. However, sequential growth was just 0.7%, suggesting that HDFC’s slower loan book growth during the quarter might be the cause.
The bank’s deposit growth overshadowed its loan growth in Q1, rising 19.2% y-o-y to ₹19.13 trillion. Analysts have emphasized that deposit mobilization is crucial for the newly merged entity to meet credit demands. As such, this trend in deposit growth is expected to persist throughout FY24.
However, with the increased cost of funds and the integration of HDFC Ltd’s loan book, the outlook on net interest margin (NIM) is subdued. “The NIM is expected to be under pressure for the near-term owing to increase in cost of funds and increased share of HDFC Ltd’s lower yielding mortgage book in the portfolio mix," said Dnyanada Vaidya, analyst, Axis Securities. That said, with HDFC Bank planning to increase its number of branches in FY24, the cost to income ratio is expected to trend higher.
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