HDFC Bank: What The Q1 Numbers Are Not Telling Us

In the quarter ended June 30, HDFC Bank saw its gross advances shrink by 0.8% sequentially to Rs 24.87 lakh crore. The reduction came as the lender saw its corporate loan book fall by Rs 26,600 crore quarter-on-quarter.

Deposits saw virtually no growth on a sequential basis at Rs 23.8 lakh crore. The low-cost current account savings account deposits fell by 5% from the March quarter, primarily because current account deposits saw a net outflow of Rs 42,500 crore.

The comparative numbers are quarter-on-quarter because of the merger.

HDFC Bank released a year-over-year comparison on Thursday, taking into account the impact of the merger. Advances rose 14.9% from a year ago, while deposits were up 16.5%.

But do these adjusted figures give you the true picture? Possibly not.

On February 15, 2024, Arvind Kapil, who was then handling the mortgage book inherited from HDFC, held a press briefing. The briefing was to tell reporters and the rest of the world the potentially intangible benefits of the merger. Kapil has since left the bank to become Chief Executive Officer of Poonawalla Fincorp Ltd.

During the briefing, Kapil explained that cross-sell efforts were taking off at HDFC Bank.

• The bank had made a straight-through processing system for home loan customers to get a refurbishment loan.

• Other products, such as unsecured loans, consumer durable loans, credit cards, wealth advisory, etc., were being pushed to home loan customers.

• The bank had also started actively pushing savings account connections with home loan customers, where 80% of the incremental home loan disbursements were happening to HDFC Bank accounts.

So, home loan customers added through the mortgage financing business unit were adding more business to the broader banking franchise than just home loans.

"Despite a substantially larger book than peers, the bank's model is generating huge benefits on a monthly basis, and its differentiated strengths are expected to generate value for customers and the bank in the future," HDFC Bank had said at the time.

It is clear that just removing HDFC's loan book from the mix will not give a clear comparison of how the bank's business has fared. Had the merger never happened, the first quarter could have looked very different.

At this stage, the unquantifiable benefits of the merger may be skewing the growth numbers, even on a like-to-like basis. Not by much, maybe 2–5%. But for a lender of HDFC Bank's size, a 2-5% change might be the difference between a great set of numbers, a not-so-great set of numbers, and disappointing numbers.

The best way to then judge HDFC Bank's financial performance might be to wait for the July–September quarter results.