- Robust loan growth of 24% yoy driven by retail segment
- NIM fell marginally; CASA ratio likely has bottomed-out
- Strong traction in fee income; C/I ratio improves substantially
- Higher delinquencies in CV/CE portfolio increases gross NPL ratio
- Superior RoA delivery to continue; BUY with 9-month target of Rs740
|(Rs mn)||Q3 FY13||Q2 FY13||% qoq||Q3 FY12||% yoy|
|Total Interest Income||87,076||85,247||2.1||72,026||20.9|
|Net Interest Income||37,989||37,317||1.8||31,160||21.9|
|Key Ratios||Q3 FY13||Q2 FY13||chg qoq||Q3 FY12||chg yoy|
|Yield on advances (%)*||11.4||11.6||(0.2)||11.3||0.0|
|Cost of funds (%)*||6.3||6.5||(0.2)||6.4||(0.1)|
|Non-interest income (%)||32.1||26.5||5.6||31.3||0.8|
|Cost to Income (%)||46.0||49.4||(3.4)||47.6||(1.6)|
|Prov./Avg. Advances (%)||0.5||0.5||(0.0)||0.7||(0.2)|
|Gross NPA (%)||1.0||0.9||0.1||1.0||(0.0)|
|Net NPA (%)||0.2||0.2||-||0.2||-|
Robust loan growth of 24% yoy; retail segment continue to grow at faster pace
HDFC Bank delivered slightly higher than expected loan growth of 24% yoy/4% qoq driven by continued robust growth momentum in retail credit (30% yoy/6% qoq). The loan mix moved marginally towards retail loans with its share standing at 53.8%. Within the retail segment, products that witnessed strong traction were 2W loans (7% qoq), personal loans (6% qoq) business banking (7% qoq; mainly represents SME loans and LAP), credit cards (16% qoq; aided by cross-selling and increasing market share), LAS (10% qoq) and gold loans (15% qoq; small base and widened distribution). CV/CE portfolio was flat sequentially after having seen robust expansion in past three years. The annual growth rate is likely to moderate with delinquencies showing an uptick and weak underlying CV market growth. HDFC Bank targets to grow its advances 4-6ppts higher than system in FY13.
CASA likely has bottomed-out
Deposits growth was also healthy at 4% qoq/22% yoy. Savings balance growth improved to 16.5% yoy and its contribution in total deposits stood at 29%. With TD rates set to decline materially in the medium term, we expect HDFC Bank’s savings balance growth to revive significantly in ensuing quarters. Increased savings traction would also be supported by intense cross-selling, widened network (bank added 156 branches in Q3 FY13) and higher service levels. Structural improvement in liquidity conditions would increase current accounts growth. Overall, CASA ratio is likely to move up from current 45% to 50% by FY15-end.
NIM fell marginally impacted by material decline in yield on investments
HDFC Bank’s NIM declined by 10bps qoq to 4.1% impacted by ~50bps decline in investment yield. In the previous quarter, lumpy dividend income significantly raised the investment yield. Lower CASA ratio over the past two quarters, reduction in base rate (by 30bps in past 8 months), shift in product mix within retail segment and increasing rate competition in few retail products also exerted pressure on margin. As HDFC Bank’s reliance on wholesale funding is low, the substantial decline in rates had only a marginal impact on its cost of deposits. Going ahead, we see stable NIMs for the bank with loan mix further shifting towards retail and a cyclical recovery in CASA ratio.
Strong traction in fee income continues; C/I ratio improves substantially
Driven by strong retail book growth, core fee income (80%+ component from retail segment) grew by brisk 24% yoy. Forex income was nearly flat yoy but higher sequentially. During the quarter, HDFC Bank had MTM gain of ~Rs1.4bn. Opex increase was muted at 4% qoq/20% yoy in the light of substantial network expansion since the start of FY12 (bank has added 790 branches widening its reach by 40%). With robust non-interest income, C/I ratio improved by substantial 340bps qoq to 46%.
Higher delinquencies in CV/CE portfolio increases gross NPL ratio
Gross NPLs rose by material 14% qoq with the ratio increasing 10bps qoq to 1%. ~80% of NPL addition of Rs3bn was from the retail segment, of which, 50% was in CV/CE portfolio implying a delinquency ratio of ~2.9-3%. Delinquencies on the residual retail portfolio continued to be modest (~0.4%), materially lower than expected (priced-in) losses. On the corporate s
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