India’s largest private sector lender, HDFC Bank is set to get stronger as peers struggle to compete with the bank while it continues to gain market share across segments.
India’s largest private sector lender, HDFC Bank is set to get stronger as peers struggle to compete with the bank while it continues to gain market share across segments. In its recently released annual report, HDFC Bank, highlighted how it has improved its profitability with return on risk weighted assets (RoRWA) jumped by 20 basis points. Brokerage and research firm Motilal Oswal said that the bank has stood firm despite slowdown in the economic activity. The brokerage firm expects the lender to improve its loan book and net profits at a CAGR of 16% and 9%, respectively as it places a BUY call on the scrip.
HDFC Bank is visibly benefiting from the current flight to safety among customers. Deposits grew 24% last fiscal year. “Growth in deposits was led by growth in both term deposits and CASA deposits by 24.6% YoY and 23.9% YoY, respectively. Overall, the bank’s CASA ratio stood at 42.2% (+270bp QoQ),” said Motilal Oswal. Being at the forefront of retail banking in the country, HDFC bank’s loan book has grown at a compound annual growth rate of 22% over the last five years. In the financial year 2020, the bank managed to increase its market share by 120 basis points. Loans given by the lender stood at Rs 3.7 lakh crore in financial year 2015, the same has surged Rs 9.9 lakh crore in the previous fiscal year. “While the share of unsecured personal and credit card loans has increased over the past few years, the bank’s credit monitoring framework remains robust, helping it maintain strong control on delinquencies,” analysts at Motilal Oswal said. HDFC Bank had a market share of 25% in credit cards in the last fiscal year.
With its arms wide open, HDFC Bank has spread branches to across 2,813cities and towns. This, analysts say, will help the lender cater to a vast customer range from the semi urban and rural areas. “HDFC bank is in a strong position to cater to the increasing demand for financial products and services in these markets. HDFCB’s strong network of 5,379 Common Services Centres further aids its ability to identify and tap into the immense potential of these markets,” said brokerage firm JM Financial, while putting a BUY call on HDFC Bank.
Wholesale loans and retail loans, sit comfortably for the bank. In financial year 2020, the loan mix was at 50% for wholesale and retail, each. Motilal Oswal added that the improvement in RoRWA of HDFC Bank shows that the profitability has improved with the help of higher fee income and lower opex rather than simply on higher balance sheet risk. The brokerage firm has a target price of Rs 1,250 on the stock.