Lower loan growth may be a positive for HDFC: Bernstein

economictimes.indiatimes.com:

HDFC Bank bracing for lower loan growth? Brokerage Bernstein said investors are asking this question, extrapolating the bank's management's comments about prioritising profitability over growth and also the continued weak deposit growth.

«While the weaker deposit growth has led to more moderate credit growth expectations across the sector, for HDFCB in particular, the extrapolation of management's comments on the usage of incremental deposits (reserve maintenance, HDFC Ltd liability replacement and growth — in that order) has raised questions on whether a loan growth of ~10% would become a harsh reality for HDFC, during the transition phase,» said the firm's analysts Pranav Gundlapalle, Ishan Mittal and Dhruv Luthra in a note to clients, while maintaining an outperform rating with a price target of ₹2,100.

Shares of HDFC Bank have declined 15.7% to ₹1,432 so far in 2024 as against the 1.6% fall in the Bank Nifty index. The recent underperformance has been on account of weaker profitability, rising cost of funds, and lower growth outlook.

Bernstein said a 10% loan growth for HDFC Bank will be a sharp decline from the current growth of 17%.

«Setting aside the deposit growth led constraints, this drop in loan growth will require a combination of bearish assumptions such as system credit growth dropping to 13% and HDFCB's incremental market share dropping to 12%,» they wrote.

HSBC Securities said lowering loan growth may be beneficial for the stock, as it would be positive for profitability. «We believe that