HDFC Bank’s NII for Q4FY19 has improved by 22.8% yoy to Rs13,090cr. The bank’s net profit was in-line with consensus estimates, which has improved by 22.6% to Rs5,885.1cr. Its GNPA for Q4FY19 came at 1.36%, a decline of 2bps qoq. NNPA for the quarter came at 0.39% against 0.42% qoq, which has declined by 3bps.
HDFCB’s 4QFY19 results beat our estimates by 2%, lar gely due to a surprise in NIM and lower loan-loss provisions. However, retail loan growth is moderating (19% YoY in FY19) and has dragged down core fee income growth (9% YoY in 4 QFY19) with it.
Management expects to make up for NIMs by lending to segments with pricing power in corporate loans.
NII growth was strong, aided by robust loan growth and an expansion in margins both, yoy and qoq. NIMs have benefitted from the re-pricing of MCLR-linked loans, higher LDR and sequential run-down in borrowings, which reduced cost of funds.
Loan growth remained strong overall, with corporate loan growth at 31% yoy. Retail loan growth however witnessed a slowdown to 19% yoy, due to the auto, business banking and two-wheeler segments, despite continued strong growth in personal loans, credit card and housing loans.
Non-interest income growth was muted, owing to a sharp slowdown in core fee income to 9% yoy. Core fee income was impacted by 1) trail commissions on MF distribution from October 2018 versus upfront commissions earlier, 2) moderation of growth in debit and credit card spends and 3) lower processing fees on retail loans, in line with lower disbursements.
Corporate loan growth improved, NIMs expanded qoq due to a drop in cost of funds, as borrowin gs were run down and CASA ratio improved to 42.4% in 4QFY19, and cost/income ratio trended lower to 39.6%, for both 4QFY19 and FY19.
Its NIMs came in at 4.4% compared with 4.3% in December quarter and 4.4% yoy.
Asset quality marginally improved on a qoq basis in 4QFY19. Slippages in 4QFY19 moderated to Rs35.8bn from Rs3,960cr in 3QFY19. Slippage ratio declined to 2.2% of opening loans (2.5% in 3QFY19).
The cost-to-income ratio for the quarter was at 40.1% as against 40.6%.
Provisions for the quarter rose to Rs1,889.2cr from Rs1,541.1cr yoy.
The board of directors has recommended a dividend of Rs15 per share for FY19 against Rs13 per share for FY18.
Key Takeaways from the conference call
High corporate loan growth was attributed to short-term opportunistic lending, including some NCLT cases, and better utilisation of working capital limits. Management indicated that a significant portion of this would run-off in Q1FY20.
Growth in housing loans bought from HDFC stood at 41% yoy in FY19 due to a low base. HDFC Bank would continue to buy-back loans at similar levels from HDFC.
Growth in two-wheeler and four-wheeler loans has slowed down, in-line with the underlying sales, impacted by changing consumer habits as well as increase in cost of acquisition due to multi-year insurance costs being borne at the time of purchase.
In CV loans, management stated that loan growth in Q4FY19 (23% yoy) was in-line with the industry. The outlook for FY20 looks strong, driven by pre-buying ahead of implementation of BS-VI norms in April 2020.
Growth in SA deposits was muted (11% yoy) compared to TDs (19% yoy) in Q4FY19. Management indicated that this was partly due to customers transferring SA balances into TDs on account of higher TD rates offered by HDFC Bank. However, the momentum of customer acquisition on SA continues to be strong.
Even as deposits remain a key focus area, incrementally, HDFC Bank would focus more on alternative sources of funding to fund loan growth, including infrastructure bonds, foreign currency bonds and institutional funding.
HDFC Bank has been able to expand margins on a sequential basis despite the increase in proportion of lending to ‘AA and above’ rated corporates, due to the corresponding increase in proportion of higher yielding unsecured loans.
HDFC Bank added 140 branches in Q4FY19. Of these, ~53% were added in semi-urban and rural areas.
Management believes that stress in the agriculture portfolio would be visible from Q1FY20. In anticipation of this, HDFC Bank has beefed up contingency provisions – Rs322cr in Q3FY19 and a further amount in Q4FY19.
GNPLs in the agriculture portfolio stood at ~3.7% of fund based exposure, as of FY19.
Movement of NPLs in Q4FY19: Slippages at Rs3,580cr, Upgrades at Rs1,000cr, Recoveries at Rs1,200cr and Write-offs at Rs1,100cr.
HDFC Bank Ltd ended at Rs. 2,290.15, down by 14.6 points or 0.63% from its previous closing of Rs. 2,304.75 on the BSE.
The scrip opened at Rs. 2,306 and touched a high and low of Rs. 2,315 and Rs. 2,284.60 respectively. A total of 32,63,517 (NSE+BSE) shares were traded on the counter. The stock traded below its 50 DMA.
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