HDFC Bank Q2FY24 Preview: Excess Liquidity Post Merger May Affect NIM

On Sunday, October 15, HDFC Bank, the largest private lender in the nation, will release its financial results for the second quarter of FY24. According to research experts, margin constraints will continue to affect the banking industry during the quarter, but growth momentum will remain robust since lending yields will continue to be basically static while CoF will continue to follow an upward trend.

Analysts predict that for HDFC Bank, the surplus liquidity might have an impact on Q2'24 NIM while core earnings growth for FY24E will be muted.

According to Prabhudas Lilladher, "Creation of excess liquidity could affect Q2'24 NIM, although margins should bounce back in H2FY24E as credit growth picks up and liquidity is utilized. While core earnings growth would be muted for FY24E (3.5% YoY), as NIM and loan growth normalize core PAT may witness a 20.7% CAGR over FY24-26E."

The brokerage has maintained a buy rating on the stock for a target price of Rs 2,025.

Axis Securities estimates that margin contraction for HDFC Bank is expected on the back of excess liquidity carried while opex ratios are expected to improve QoQ, The bank's GNPA may inch up slightly, accounting for the stress in the non-individual book of HDFC Ltd. The brokerage said that the systemic credit growth of ~20% YoY factoring in the HDFC-HDFC Bank merger continues to remain healthy and largely driven by Retail and SME.

According to information provided on the stock exchanges by HDFC Bank, the consolidated merged advances merely rose by 4.9% or Rs. 1.10 lakh crore to Rs. 23.55 lakh crore in Q2FY24 from Rs. 22.44 lakh crore the quarter before. Additionally, compared to the same period in the previous year, the merged entity's deposits jumped by Rs 1.09 lakh crore or 5.3% to Rs 21.73 lakh crore in Q1FY24. The bank's advances and deposits totalled Rs. 14.93 lakh Cr and Rs. 16.73 lakh Cr, respectively, in Q2FY24.

In the quarter under review, the bank's deposits jumped by 29.9% to Rs 21.73 lakh crore from Rs 16.73 lakh crore in Q2FY23. The deposits were Rs 19.13 lakh crore as of Q1FY23. As of September 30, 2023, the bank's current and savings account (CASA) deposits totalled roughly Rs 8.17 lakh crore, which is a rise of roughly 7.6 per cent over Rs 7.59 lakh crore from the corresponding quarter of last year and roughly 0.6 per cent over Rs 8.13 lakh crore from the quarter before in June. According to the bank, the CASA ratio was around 37.6 per cent in Q2FY24, down from 45.4 per cent in Q2FY23, and 42.5 per cent in Q1FY24.

Following its merger with HDFC Ltd, the parent company, HDFC Bank recorded its highest-ever home loan disbursals, totalling over Rs 48,000 crore in Q2FY24 recording a growth of 10.5% YoY and 14% QoQ. As of the quarter under review, the bank's gross advances totalled about Rs 23.54 lakh crore. By September 30, 2023, the bank's deposits were over Rs 21.73 lakh crore. In comparison to the combined deposits of Rs 20.63 lakh crore as of June 30, 2023, deposits jumped by around Rs 1.09 lakh crore in the quarter, or about 5.3 per cent.

As per a report by Motilal Oswal, HDFC Bank's loan growth to remain in check and asset quality for the merged entity is expected to increase. By maintaining a target price of Rs 1950, the brokerage said that HDFC Bank's margins are likely to moderate sequentially while business growth and earnings trajectory are key monitorables.

Commenting on the Q2 preview of the banking sector, the research analysts of Prabhudas Lilladher said "Banks under our coverage are expected to witness a weak quarter as core earnings could fall by 9.3% QoQ to Rs454bn (vs -2.7% QoQ in Q1'24), mainly driven by lower NIM. Loan growth might come in at 3.7% QoQ (1.7% in Q1FY24), while deposit accretion could be +3.5% QoQ (2.1% last quarter). NIM contraction could be maximum this quarter (vs Q1&H2FY24) and we expect NIM to decline by 22bps QoQ (-6bps in Q1'24) to 3.6%. IIB and AXSB may see lower NIM contraction."

"Fees could grow by 3.3% QoQ to Rs315bn while opex may spike by 6.6% QoQ to Rs793bn (due to seasonality in case of PSU banks). Core PPoP may come in at Rs729bn (-7.7% QoQ). IIB, AXSB, and FB might perform better on core PPoP. Slippage ratio might decline by 40bps QoQ to 1.1% as HDFCB and SBI could see lower sequential delinquencies. Banks' PAT is expected to be Rs500bn (-14.2% QoQ). Among our coverage universe we prefer HDFCB, SBI and FB," Prabhudas Lilladher said in a report.

Disclaimer

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