The country’s largest private sector lender, HDFC Bank has let go Rs 1 trillion in corporate lending opportunity due to unattractive pricing, brokerage house Motilal Oswal said in a report on Tuesday, after interacting with HDFC Bank’s top management, including MD and CEO Sashidhar Jagdishan.
Of the total, Rs 30,000 crore of such proposals were rejected by the bank in Q1FY24 alone, the brokerage said.
This is in line with the bank management’s Q1FY24 commentary wherein CFO Srinivasan Vaidyanathan had said that while from a relationship point of view, the bank wants all of the top corporates with it, from a pricing point of view the lender has seen some disruption over the last few quarters.
“So, we are not going to bid, we are not going to compete on pricing to win over these loans. We want these relationships, but not necessarily at bargain prices,” said HDFC Bank CFO in the post-Q1FY24 earnings call.
The lender’s wholesale loan book grew 11% year-on-year to Rs 4.04 trillion as of June 30, but de-grew sequentially by 1-2%, the CFO said. At the same time, retail advances grew 18% y-o-y and 4% sequentially to Rs 6.57 trillion as of June-end. Consequently, while the share of retail loans in overall advances increased to 47% as of June-end from 44% a year ago, that of wholesale loans decreased to 53% from 56% in the same period.
On an overall basis, the merged entity of HDFC Bank will likely post 12% year-on-year loan growth during July-March, and the credit growth will recover to 17% between FY24-FY26, Motilal Oswal said. HDFC Bank completed the merger with Housing Development Finance Corp (HDFC) on July 1.
“Loan growth is likely to remain healthy, and the bank expects to double the balance sheet in about four years, which is close to its historical run rate (FY13-23 CAGR at 21%),” it said.
Mobilising deposits will remain the prime focus area for HDFC Bank, as they are a key source of funding. Accordingly, the lender plans to continue with its aggressive branch expansion run rate of 1,400-1,500 branches in FY24 and aims to increase its total branch count to 13,000-14,000 to sustain the growth trajectory over the medium term, the brokerage said, adding that HDFC Bank now also has additional 500 branches of HDFC, which will be scaled up over the year.
“Most of the branches are opened in the regions where the bank sees healthy liability potential and has limited presence currently. HDFC Bank has one of the highest deposit productivity rates in the industry,” the brokerage said, adding that the bank’s management mentioned that over 90% of new branches are generating business as per internal projections.
Further, HDFC Bank has built higher general and contingent provisions of Rs 3,900 crore and NPA provisions of Rs 3,800 crore to maintain the strength of the merged HDFC Bank entity’s balance sheet.
“These additional provisions do not reflect any change in view on underlying asset quality and differ from the erstwhile provisioning, which was based on an estimated loss approach as per INDAS,” it said, adding that “unwinding” in the wholesale book of HDFC will continue in the near term.
The brokerage has maintained its “BUY” rating for the bank’s stock with a target price of Rs 1,950 per share. The lender’s shares closed 0.39% higher at Rs 1,537.65 apiece on the BSE on Tuesday.