HDFC Bank: Asset quality remains stable; loan growth driven by traction in commercial, retail & rural loans

HDFC bank reported an in-line quarter with increased traction in Core PPoP and NII growth, even as margins remained stable. The loan growth was driven by sustained momentum in

the retail segment and robust growth in commercial and rural banking, says Motilal Oswal, the broking firm. Asset quality ratios remained stable, while the restructured

book declined to 42bp of loans. Healthy provisioning coverage ratio (PCR) and a contingent provisioning buffer should support asset quality. The broking firm estimates HDFC Bank

to deliver a 19% CAGR in net profit over FY22-25, with RoA/RoE of 2.0%/17.7% in FY25. Motilal Oswal maintained its ‘buy’ rating with a target price of Rs 1,930. It expects the

stock to perform gradually as the margin profile revives and the merger related overhang eases (bank aims to complete the merger by Q1/Q2FY24). Deposit growth steady;

Margin remains stable q-o-q at 4.1% HDFC Bank’s net interest income (NII) rose 24.6% y-o-y to Rs 23,000 crore compared with Rs 18,443.48 crore during the same period last

year. PAT grew by 18.5% y-o-y to Rs 12,260 crore. Other income rose 12% q-o-q to Rs 8,500 crore, aided by treasury gains of Rs 260 crore vs a loss of Rs 250 crore in Q2FY23.

Excluding trading income, other income rose 15% y-o-y, with fee income up 19% y-o-y. Also ReadRupee falls 21 paise to close at 81.59 against US dollar The operating

expenditure was high at 27% y-o-y and reflected continued investment in branches and employees and the increasing mix of retail assets. The cost-to-income ratio (C/I ratio) stood

at 39.6%. PPoP grew 13% y-o-y; however, core PPoP grew by a healthy 19% y-o-y vs 17% y-o-y/12% y-o-y in Q2FY23/Q3FY22.