HDFC Bank Posts Best Ever Home Loan Growth In Q2; But Merged Entity's Loan Book Up Meagre 4.9% QoQ

The largest private sector lender, HDFC Bank's latest September quarterly update for FY24, has shown some impressive double-digit growth in advances and deposits. The most eye-catching would be the highest ever home loan disbursals of Rs 48,000 crore in Q2FY24, which is thanks to merging the once largest housing finance company HDFC. Overall, HDFC Bank's balance sheet has witnessed robust growth post-merger. But there's a catch!

The lender's gross loans have registered just a meagre 4.9% growth as the combined entity in Q2FY24, while deposits also saw single-digit growth. Notably, current and savings account (CASA) ratio contracted by 780 basis points YoY and 490 basis points QoQ.

India's largest NBFC till June 30, 2023, HDFC was amalgamated with and into HDFC Bank on July 1, 2023, in the largest ever deal in the country's corporate history, at $40 billion.

As per the data given by HDFC Bank on the exchanges, the combined entity's pro-forma merged advances only rose by 4.9% or Rs 1.10 lakh crore to Rs 23.55 lakh crore in Q2FY24, as against the advances of Rs 22.44 lakh crore in the preceding quarter.

Further, the combined entity's deposits climbed by Rs 1.09 lakh crore or 5.3% to Rs 21.73 lakh crore in Q1FY24, as against Rs 20.64 lakh crore in the June 2023 quarter.

In the September 2022 quarter, the bank's advances and deposits stood at Rs 14.93 lakh crore and Rs 16.73 lakh crore respectively.

Nevertheless, HDFC Bank said, home loan disbursals during the first quarter post-merger were the best ever at ₹ 48,000 crore. This is a growth of 14.0% over the quarter ending June 30, 2023, and a growth of 10.5% over the quarter ending September 30, 2022.

Separately, HDFC Bank said its gross advances climbed 577% YoY and 44.4% QoQ to Rs 23.55 lakh crore, while deposits were up by a whopping 29.9% YoY and 37.6% QoQ to Rs 21.73 lakh crore. HDFC Bank said its advances and deposits were at Rs 16.30 lakh crore and Rs 19.13 lakh crore in June 2023 quarter excluding HDFC merger shocks.

Furthermore, in the loan book, domestic retail loans grew by around 111.5% year-on-year, while commercial & rural banking loans climbed 29.5%, corporate & other wholesale loans were also up by 6%, and non-individual loans of the erstwhile HDFC Limited (eHDFCL) aggregated to approximately Rs 1.025 lakh crore.

Additionally, HDFC Bank's CASA deposits witnessed a growth of 7.6% YoY to Rs 8.175 lakh crore, while the CASA ratio stood at around 37.6%, lower compared to 45.4% in Q2FY23 and 42.5% in Q1FY24.

It needs to be noted that this is a provisional update of Q2FY24 by HDFC Bank, and the main financial results will be announced soon this month.

On BSE, HDFC Bank's share price traded at Rs 1521 apiece, up by 0.9% at the time of writing. The stock ranged from Rs 1526.75 apiece to Rs 1488.65 apiece.

HDFC Bank's shares are in focus on its plan for management rejig owing to its growing branch network and mortgage book.

It needs to be noted that HDFC Bank has already warned about margin pressure and bad loans following the merger of HDFC.

Post its analysts meeting last month, HDFC Bank sees margin pressure of ~30-40bp in FY24F amid excess liquidity of Rs1 trillion post-HDFC merger, which should normalize post-liquidity utilization, as per the Incred Equities report. It also expects non-individual loan books to be under pressure as NPAs from the outstanding loans increased to ~6.7% as of 1 Jul 2023 against ~2.9% in March 2023.

Following this, HDFC Bank is expected to see a muted FY24 by the majority of brokerages. Gaurav Jani - Research Analyst, Prabhudas Lilladher earlier said that driven by excess liquidity, NIM for Q2FY24E could dip sharply by 40bps to 3.6%; however, as loan growth picks and liquidity is utilized NIM would normalize to 3.88% by Q4FY24E. He also said, the rise in non-individual GNPA of HDFCL (by Rs35-40 billion) is certainly a negative surprise and the bank has made the necessary adjustment to equity to align PCR to 74%.

That being said, in Q2FY24, HDFC Bank's net interest income (NII) which is the difference between interest earned and expended, along with NIM, provisions and asset quality performance will be keenly watched. Furthermore, management's commentary and their outlook ahead will be eyed too.

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