Higher core PPOP was used up in provisions of Rs 2,600 crore, as the bank built contingency provisions of Rs 85 crore towards HFC/NBFCs and Rs 165 crore towards other corporate sectors as a prudent measure given the ongoing liquidity stress.
HDFC Bank delivered yet another stable performance with a 21% y-o-y PAT growth (in line with our expectations) with a better-than-expected core operating performance used up to build provision buffers. Core PPOP was 3% above our expectations, as the bank has been able to manage margins well, delivering a 23% y-o-y NII growth. Higher core PPOP was used up to build up higher contingent provisions which should ensure better stability in earnings which has been the key strength for HDFC Bank. Having said that, the economic slowdown is finally being reflected in bank performance, with loan growth moderation across all segments, and a growth vs NIMs trade-off finally showing up. Hence, we look for better visibility on normalisation in growth and in general prefer corporate banks over retail banks.
Strong operating performance was led by a 23% y-o-y NII growth despite moderation in loan growth to 17% y-o-y, as the bank has been able to maintain NIMs well in the 4.3-4.4% range. Core fee growth of 13% y-o-y continued to be dragged by cuts in mutual fund fees (15% growth ex of the impact), but moderation in retail disbursals has also impacted fee growth. Opex ratios continued to improve (cost-income ratio at 39%), and the bank’s digital initiatives should help bank further reduce cost-income ratio by 300-500bp over 3-5 years, management highlighted.
Higher core PPOP was used up in provisions of Rs 2,600 crore, as the bank built contingency provisions of Rs 85 crore towards HFC/NBFCs and Rs 165 crore towards other corporate sectors as a prudent measure given the ongoing liquidity stress. Additionally, the bank increased its provision rate in its unsecured NPL buckets, thereby writing off the NPLs in 150 days vs 180 days earlier given the slowdown in the economy. Asset quality ex agri remained stable (GNPLs ex agri at 1.2%) while agri stress remained elevated. Slippages came in at `420 crore (2% of loans), which included agri slippages of Rs 130 crore.