HDFC Bank-Q3FY24 results update

Sector Outlook – Positive
In the third quarter of the financial year 2024 (Q3FY24), HDFC Bank reported impressive profits that exceeded market expectations. The bank’s Net Interest Income was Rs. 28,471 crores, showing a growth of 4.0% from the previous quarter and 23.9% compared to last year. The Preprovision Operating Profit was slightly lower than expected at Rs. 23,647 crores. Provisions for potential losses increased to Rs. 4,217 crores due to extra reserves for investments in Alternative Investment Funds.
The bank’s net profit reached Rs. 16,373 crores, higher than the predicted Rs. 16,016 crores. Net Interest Margin stayed steady at 3.6%, but it was lower than last year. Bad loans (Gross NPA) were slightly down from last quarter but a bit up from last year. The bank’s overall financial health remains strong, with a Capital Adequacy Ratio of 18.4%. Deposits and loans both saw significant growth compared to last year.
Additionally, HDFC’s subsidiaries, including HDB Financial Services and HDFC Life Insurance, reported healthy growth in their revenues and profits, contributing positively to the bank’s overall performance.

Key Concall Highlights

• HDFC Bank’s loans, especially mortgages, grew significantly.
• 84% of the bank’s total deposits are from retail customers, focusing on smaller, individual deposits.
• As of December 31, 2023, the bank expanded its network to 8,091 branches, adding 146 new branches in the last quarter.
• The bank hired about 10,000 new employees in this quarter to serve its large customer base of 93 million.
• HDFC Bank revised its target for FY24 to open 1,000 branches instead of 1,500, with 570 more planned for the next quarter.
• Extra provisions of Rs. 1,220 crores were made in Q3FY24 due to new RBI guidelines on investments in Alternative Investment Funds.
• The bank’s asset quality is stable, with total provisions covering 159% of bad loans, plus additional security as collateral.
• There was a 3.3% decrease in non-retail deposits as the bank focused more on retail deposits.
• HDFC Bank aims to target 5.6 million customers for mortgage loans, expecting to improve its Net Interest Margins and Return on Assets.
• The management expects the Current and Savings Account (CASA) ratio to improve and return to 42%-44% in the long term.
• Despite some impact from RBI’s new rules on risk-weighted assets, the bank finds its unsecured loan book very profitable due to its low default and bad loan rates.
• The bank plans to continue growing its unsecured loan book by 18-20% due to its potential and profitability.

Valuation and Outlook
HDFC Bank, India’s biggest private bank, had good results in the third quarter of the 2024 financial year (Q3FY24), with profits higher than what people expected. Even though the banking sector is facing challenges with Net Interest Margins (NIM), HDFC Bank managed to keep it stable. The bank’s growth in unsecured loans (like personal loans) has been reasonable, even though it affected its capital. HDFC Bank plans to increase its branches to over 13,000 in the next 3-5 years, which should help it gather more deposits and improve its CASA ratio (a key measure of a bank’s efficiency). Profits in Q3FY24 also got a boost from lower taxes and more earnings from investments. The bank’s history of giving out good loans suggests its financial health will stay stable. Its large number of branches means it can offer more products to customers, helping its overall sales. However, the full benefits of its recent merger and the difference between loan growth and deposit collection are areas to watch in the future. Overall, the outlook for the bank is positive for the medium to long term.