While corporate loan growth is strong and driving overall loan growth, retail loan growth remains skewed in favour of unsecured products.
HDFC Bank reported core PPoP growth of 19% Y-o-Y while elevated provisions resulted in PBT growth of 16% Y-o-Y. PAT growth of 33% Y-o-Y was aided by lower tax rate. Slippages were elevated though the operating performance remained strong with stable margins, robust fee growth and improving C/I ratio. We fine-tune our estimates factoring in strong other income and higher provisions as the bank has created certain specific provisions. Maintain ‘buy’ with a PT of `1,500 (3.7x Sep’21E ABV).
NII grew 13% Y-o-Y to `14,170 crore with margins stable at 4.2%. Core fee income grew 24% Y-o-Y to `4,530 crore, driving 19% Y-o-Y growth in total revenues.
The loan book increased 20% Y-o-Y, led by the corporate segment (+27% YoY) while retail loan growth was soft at 14.1% Y-o-Y. Within retail, credit cards and personal loans grew 11%/7%
Q-o-Q. Deposits grew 25% Y-o-Y while CASA mix increased 20 bps Q-o-Q to 39.5%. Slippages stood at `5,340 crore, resulting in ~7% Q-o-Q increase in GNPA. NNPA increased 18% Q-o-Q. GNPA/NNPA ratios increased by 4bp/6bp QoQ. Coverage ratio declined ~300bp QoQ to 66.7%. Subsidiaries: HDB Financial – For 3QFY20, loan growth stood at 15% YoY and PAT at `340 crore (+16% YoY). HDFC Securities – Net revenue stood at `210 crore (+17% YoY) and PAT at `94.3 crore (+35% YoY) for 3QFY20.
HDFC Bank’s operating performance remains strong in a tough environment. While corporate loan growth is strong and driving overall loan growth, retail loan growth remains skewed in favour of unsecured products. Asset quality has deteriorated as the bank reported higher slippages from lumpy accounts and the agri segment.
However, provisioning buffers should enable a steady earnings trajectory.