HDFC Bank’s Q2FY24 PAT reached INR 159 bn driven by strong loan growth

Company Overview:

HDFC Bank, the largest private sector bank in India, offers a diverse range of banking and financial services. Their portfolio includes retail loans such as home loans, LAP, 2-wheeler loans, personal loans, as well as wholesale loans for corporates, businesses, and agriculture. In Q2FY24, retail loans accounted for 51% of the loan book, while wholesale loans constituted the remaining 49%. The company expanded by adding 85 net new branches, increasing their total to 7,945 compared to 6,499 in Q2FY23, with a total customer base of 91 million, marking a 7% QoQ growth.

Deposit grew 5.3% QoQ (merged basis) which reduce CASA to 37.6% in Q2

During Q2FY24, deposits increased by 5.3% QoQ (on a merged basis), reaching 21,729 billion, while the loan book grew by 4.9% QoQ (on a merged basis) to 23,328 billion. The increase in term deposits resulted in a reduced CASA ratio of 37.6%. Gross advances stood at 23,546 billion, growing by 4.9% QoQ (on a merged basis). Retail deposits accounted for 83% of the total, with the remaining 17% being wholesale deposits in Q2FY24.

Loan book up 5.5% QoQ driven by Retail and CRB in Q2

In Q2FY24, the retail loan book expanded by 3.1% QoQ (a remarkable 106.62% YoY) to 11,995 billion, while the CRB (Corporate, Retail, and Business Banking) loan book grew by 9.7% QoQ (29.46% YoY) to 7,052 billion. Among the retail loans, credit card and personal loans grew by 0.5% and 1.1% QoQ, respectively, while gold and other retail loans displayed robust growth at 7.8% and 7.2% QoQ in Q2FY24. In the CRB segment, agriculture and business banking demonstrated strong growth at 13.6% and 10% QoQ, while corporate loans increased by 5.8% QoQ.

NIMS Contraction – 70 bps QoQ to 3.65% Impact of High CoF

Net Interest Margins (NIMs) declined by 70 basis points (bps) QoQ, reaching 3.65%, primarily due to an 80 bps increase in the cost of funds (CoF) QoQ (150 bps YoY), which stood at 4.8%. This increase in CoF was attributed to excess liquidity in the merged arm of HDFC Bank, which incurred higher costs. On the other hand, the yield on loans rose by 135 bps QoQ (218 bps YoY) to 9.7%, resulting in a spread of 3.26%, reduced by 35 bps QoQ (42 bps YoY).

Slight Increase in GNPA/NNPA- 17bps QoQ/5bps QoQ

Asset quality experienced a minor decline in Q2FY24, with Gross Non-Performing Assets (GNPA) and Net Non-Performing Assets (NNPA) increasing by 17 bps QoQ and 5 bps QoQ, respectively, to 1.31% and 0.35%. The amounts for GNPA and NNPA stood at 3,15,799 million and 80,728 million, respectively. The provision coverage ratio remained at 74.4%, compared to 74.9% in the previous quarter. Capital Adequacy Ratio (CAR) continued to be strong at 19.54% in Q2FY24, exceeding the RBI guidelines of 15%.

Valuation and Key Ratios:

As of the current market price of 1,489, the stock is trading at 2.87 times its book value of 519 per share. The company reported healthy return ratios in Q2FY24, with Return on Assets (ROA) at 2%, Return on Equity (ROE) at 16.2%, and an Interest Coverage Ratio of 1.65x, signifying the company’s solvency.

Q2FY24 Results Updates: Standalone

➡️ In Q2FY24, interest income surged by 75.45% YoY (39.33% QoQ) to 676,984 million, while interest expenses increased by 129.51% YoY (61.33% QoQ) to 403,132 million, resulting in Net Interest Income (NII) of 273,852 million, growing by 30.27% YoY (16.04% QoQ).

➡️ The healthy growth in NII was driven by the high yield on loans, which increased by 135 bps QoQ and 218 bps YoY.

➡️ Total income in Q2FY24 increased by 33.11% YoY (16.03% QoQ) to 380,930 million, led by a 40.97% YoY and 16.04% QoQ increase in other income.

➡️ Pre-Provision Operating Profit (PPOP) income grew by 30.48% YoY (20.89% QoQ) to 226,938 million, driven by operating efficiency. The cost-to-income ratio dropped by 240 bps QoQ.

➡️ Profit After Tax (PAT) surged by 50.64% YoY (33.67% QoQ) to 159,761 million, resulting in Earnings Per Share (EPS) for the quarter standing at 21 Rs, growing by 10.53% YoY and remaining stable on a QoQ basis.

Conclusion:

HDFC Bank, India’s largest private sector bank, reported positive Q2FY24 results with healthy growth in deposits and advances. The bank’s loan book showed significant expansion in both retail and corporate segments, and while there was a slight contraction in net interest margins due to higher cost of funds, the overall financial performance remained robust. Asset quality remained stable, and the bank continued to maintain a strong capital adequacy ratio. With a trading valuation at 2.87 times book value and healthy return ratios, HDFC Bank continues to demonstrate its resilience and strength in the Indian banking sector.