Mumbai: Asset quality at India’s most valuable lender HDFC Bank is unlikely to deteriorate even after the disruptions caused by Covid-19, CLSA said Tuesday, citing the management’s latest assessment of potential bad loans.
“Covid-19 led to a spike in slippages and credit costs, but the management expects asset quality impact to be manageable, with gross non-performing assets increasing from 1.3% to just 2%,” CLSA said in a report. “Low corporate book risk, a high share of salaried/known-to-bank customers, a relatively improved rural economy and an expected 2HFY21 bounce underpin management expectations of manageable asset quality.”
CLSA’s report came after an investor group call the brokerage house hosted with HDFC Bank’s CEO-designate Sashi Jagdishan.
CLSA also retained a ‘buy’ rating on the stock, with a price target of ₹1,450, meaning a 30% upside.
The bank has maintained a common equity tier 1 position of 17% and is comfortable with the current capitalisation.
The private lender has also turned its focus on building the corporate book with low-risk, short-duration and working-capital lending.
“The bank’s strength has been in having a higher transactional share of the corporates versus their lending share; recent changes in current account regulations should be neutral for the bank,” CLSA said.
The private lender’s customer base grew to 56 million with branch customer additions doubling from 3 million to 6 million in the past two years. The bank will also follow a multidimensional customer acquisition strategy that will include institutionalising branch sales processes, targeting the top 20-25% of rural/semi-urban populations and partnering with fintech.
Get Unlimited Access to The Economic Times
