Small is beautiful for HDFC Bank on margin path
₹16,372.5 crore in the December quarter as net interest income showed a healthy increase. This figure handsomely beat estimates by 19 analysts polled by Bloomberg, who expected it to post a net profit of ₹15,762 crore in the quarter. The bank’s net interest income–the difference between interest earned and interest expended–grew 23.9% y-o-y to ₹28,471.3 crore.
Vaidyanathan said that while the current rate of growth is robust, the lender could look at readjusting the mix between retail and corporate loans, to target more profitable segments that could in turn lead to better margins. In December, HDFC Bank’s core net interest margin (NIM) stood at 3.4%, unchanged from the previous quarter. Comparatively, the NIMs of ICICI Bank and SBI for Q2 -- results for Q3 are awaited -- stood at 4.53% and 3.43%, respectively.
Usually for banks, margins in retail loans -- especially in unsecured loans -- are higher than for loans given to corporates; so, a further tilt towards retail loans may help lift margins for the bank. “A key aspect was that margins were flat quarter-on-quarter at 3.4%. Improvement in NIM is critical for re-rating of the stock," Suresh Ganapathy, managing director and head of financial services research at Macquarie Capital said in a note.
Analysts are closely watching the bank’s strategy in the coming quarter as it tries to garner more deposits to match its burgeoning loan book. “HDFC Bank has shown operational improvement, but there is a question mark on how it will manage the deposit growth that is still lagging credit growth," said Asutosh Mishra, head of research, institutional equities, Ashika Stock Broking. “This will be the primary focus at the moment and might disappoint market expectations." HDFC Bank’s
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