HDFC Bank: Q4 Performance Review
HDFC Bank Limited is India's largest private sector bank in terms of assets and the country's largest private sector lender. For the quarter ended March 2022, private lender HDFC Bank recorded a 23 percent year-on-year (YoY) increase in standalone net profit of Rs 10,055.2 crore. In the previous quarter, the bank made a profit of Rs 8,187 crore. The increase in profit is due to a reduction in bad loan provisions of 29%, as well as improvements in overall asset quality.
In Q4, net interest income (NII) climbed 10.2 percent year on year to Rs 18,872.7 crore, with credit growth of over 21% and deposits growth of 16.8 percent. The bank's net interest margin on total assets was 4%, and 4.2 percent on interest-earning assets was 4.2 percent.
However, as the analysts' forecast, the largest private lender missed the projected profit figure of Rs 10,200 crore by a short margin.
Key Events:
The merger of Housing Development Finance Corporation (HDFC) and HDFC Bank occurred in the fourth quarter, an important event for the HDFC Bank. Following Reliance and TCS, HDFC Bank would be the third-largest company in market capitalization after the merger. The Reserve Bank of India, the Competition Commission of India, the National Housing Bank, and the Insurance Regulatory and Development Authority of India are now reviewing the agreement.
Key Takeaways:
1. Improved Asset Quality:
Gross nonperforming assets (NPAs) as a percentage of total advances decreased at HDFC Bank. Gross nonperforming assets as a proportion of total advances fell to 1.17 percent in Q3 2021, down from 1.26 percent in Q3 2021 and 1.47 percent in Q2 2021.
2. Increased Provisions:
In Quarter 4, however, the total provisions reported were 182 percent of the gross NPAs. Provisions and contingencies increased to Rs 3,312.35 crore in the quarter, up from Rs 2,993.98 crore in the previous quarter.
3. Double-Digit Growth in Net Interest Income:
The difference between the interest revenue a bank generates from its lending activities and the interest it pays to depositors, known as net interest income (NII), increased 10.2 percent year on year to Rs 18,872.70 crore from Rs 17,120.20 crore in the previous quarter. The NII value of Rs 19,400 crore fell short of the predicted forecast.
4. A rise in Advances & Deposits:
The bank's liquidity coverage ratio was 112 percent, with deposits of Rs 15,59,217 crore for the quarter, up 16.8% year on year. The advances were Rs 13,68,821 crore for the quarter, up 20.8 percent year on year.
5. Stable Credit Costs:
The overall credit cost recorded by the private lender for the quarter was 0.96 percent, up from 0.94 percent in the previous quarter and 1.64 percent the year before. The overall balance sheet was Rs 20,68,535 crore, up 18.4% year on year from Rs 1,74,6871 crore.
6. Increased CASA Deposits:
CASA deposits accounted for 48.2% of total deposits in the fourth quarter, up 22% from the previous quarter, with savings account deposits totaling Rs 511,739 crore and current account deposits totaling Rs 239,311 crore. Time deposits increased by 12.3% year on year to Rs 8,08,168 crore.
7. Aggressive Branch Additions:
During the quarter, the bank added approximately 563 branches and 7,167 staff, bringing 734 branches and 21,486 employees for the year. The bank's distribution network had 6,342 branches and 18,130 ATMs/Cash Deposit & Withdrawal Machines (CDMs) spanning 3,188 cities as of March 31, 2022. According to the bank, half of the bank's branches are in semi-urban and rural areas.
Forecast/Predictions:
With a BUY recommendation and a 37.68 percent upside from the current price of 1464.95 on April 16, 2022, the analyst predicts a bullish outlook for the bank.