HDFC Bank: Quarterly Result Update
20-04-2022

HDFC Bank | Market Cap: Rs 753,084 Cr

CMP 1,358 | P/E 17x FY23

Results: HDFC Bank reported NII* growth of 10.2% and pre-provisioning operating profit growth of 4.1% year on year during the quarter. Loan book grew at 21% year on year.

Net Interest Margin declined to 4% (vs 4.2% in Q4FY21) due to higher growth in wholesale segment.

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Key Highlights:

• HDFC Bank’s advances growth of 21% came from commercial banking (30.4%), Agri (26.1%), Retail (15.2%) and wholesale banking (17.4%) year on year.
• Within retail, home loan grew 18.4%. The supply chain constraints impacted the vehicle segment, thereby partially impacting the retail book growth.
• Operating expenses grew 10.6% year on year. Employee exp. increased 17.4% and other expenses increased 8%.
• Asset quality improved with GNPA at 1.17% (vs 1.32% in Q4FY21). Restructured assets stood at 1.1% & total stress at 2.3% of gross loan.
• Total provision was 2.1% of gross loan and provisions were lower by 29% year on year.
• Growth in fees on the payment products were lower due to lower fees on card loan product, cash advances, over limit fees, reflective of a cautious approach to card-based lending. In addition, bank offered certain fee waivers during the festive period to incentivize customer engagement. Excluding payment product, the fee-based income increased by 14-15% year on year.
• As of end of Mar’22, CASA** improved to 48.2% of total deposits (vs 47.1% in previous quarter).
• HDB Financial Services reported flat growth in loans at Rs. 61,330 Cr, while revenue grew 8% year on year. 
• The bank opened 734 branches in and hired over 21,486 people during FY22.

Management Outlook: As per the management, owing to covid pandemic, bank went risk averse and focused more on secured and high rated product. The shift in the preference had impacted the margin as high rated product has low margin. But from RoA or ROE perspective, these products provide return equivalent to bank’s present RoA or RoE due to low cost to income ratio in wholesale business and low credit cost in secured business. Net Interest Margins are expected to improve as retail/commercial growth accelerates. The long-term average credit cost has been between 1%-1.2% and management expects the bank to move below long term average due to higher growth in wholesale segment which has lower credit cost and opex.