HDFC Bank Q4 Results Review: Floating Provisions Not To Impact Asset Quality, Say Analysts

HDFC Bank Ltd.'s voluntary floating provisions made in this quarter may not have an impact on asset quality, according to analysts. The private lender has utilised one-off treasury gains and tax write-back to create floating provisions worth Rs 10,900 crore. 

These are neither against any specific assets nor are expected to be used in the near term, analysts said.

"The bank does not expect to revoke the floating provision in the near future, and it would help the bank strengthen its balance sheet and ensure that it is protected from any unanticipated movements," Nirmal Bang said in a note.

The bank's net profit rose 0.84% sequentially to Rs 16,512 crore in the quarter ended March 2024, according to an exchange filing. This is due to lower core income growth and higher provisions. Its net interest income rose 2% quarter-on-quarter to Rs 29,077 crore.

Other income, however, rose 63% on a quarterly basis to Rs 18,166 crore.

In Q4, the lender also recorded one-time gains worth Rs 7,314.4 crore due to the sale of the education finance company, HDFC Credila, to BPA EQT and Chrys Capital.

"The non-interest income line was bloated this quarter due to the about Rs 7,300 crore gain from the sale of the bank’s stake in Credila (a NBFC subsidiary focused on educational loans)," Bernstein said in a note.

Net interest margin, on an interest earning asset basis, stood at 3.63% as of March 31, compared to 3.6% as of Dec. 31. The bank did not give any guidance on margins this time.

Here is what analysts said about HDFC Bank's Q4 results:

• Fee income saw improvement at over 15% QoQ, a relief after a few stagnant quarters.

• The QoQ loan growth was tepid at 1.6%, led by retail (+3.5% QoQ) and CRB (+4.2% QoQ)

• Expect the bank to maintain loan growth in the ~15% range and deposit growth of around 18–19%.

• Expect to see 10% EPS growth in FY25E and 19% in FY26E.

• The 2.4% QoQ decline in non-interest income was due to weak gains in investments, even as fee income saw a +15% QoQ rise.

• Excluding the one-off, opex increased around 3.2% QoQ, leading to a rise in the cost-to-income ratio to 41.3%.

• The main concern remains the lack of a meaningful increase in loan yields.

• Maintain 'outperform' with a target price of Rs 2,100.

• The CEO reiterated his focus on granular deposit taking with stability in key metrics.

• Incremental LDR at a higher than normalised level may keep earnings volatile.

• Loans grew 2% QoQ, while deposits grew 7.5% QoQ, leading to an improvement in LDR from 104%.

• A higher-than-expected decline in the CASA ratio and a change in the macroenvironment may have an adverse impact on fund costs and, consequently, margins.

• Expect a cut in EPS of 2% and 3% for FY25E and FY26E, respectively.

• Maintain 'buy' with a target price of Rs 1,760 apiece.

• NII grew 2% QoQ due to a slight improvement in lending yields while the cost of funds remained stable.

• Opex was higher due to ex-gratia staff provisions worth Rs 1,500 crore.

• Expect the bank to deliver 13.5–18% CAGR in loans/deposits over FY24–26 and 16% CAGR in earnings.

• Expect a RoA and RoE of 1.9% and 15.5%, respectively, by FY26

• Margins are to be driven by deposit costs and business mix considerations.

• Gradual retirement of high-cost borrowings, along with an improvement in operating leverage, is expected to boost return ratios over the years.

• Maintain 'buy' with a target price of Rs 1,950 apiece.

• Deposit accretion to remain a key variable impacting growth/NIM

• Slash growth estimate to ~13% CAGR for FY24-26, with LDR easing to 100/96% for FY25/26.

• Seasonality contributes to Q4 NIM.

• Expect the bank to deliver a RoA of ~1.7% for FY25/26 with a 14–15% RoE.

• A key operating highlight for Q4 was a 10% QoQ fall in borrowing.

• Given that funding has been a constraint, the bank has rationed incremental lending towards granular and high-yielding segments.

• Expect NIM to remain under a bit of pressure due to moderating CASA share, rising LCR and adverse LDR.

• Expect gross slippages at ~1.2% for FY25/26 and credit costs at ~40-50bps for the same period.

• Upgrade to 'buy' with an unchanged target price of Rs 1,850 apiece.

Shares of HDFC Bank rose as much as 1.70% during the day to Rs 1,557.40 apiece on the NSE. It was trading 0.49% lower at Rs 1,523.85 apiece, compared to a 0.45% advance in the benchmark Nifty 50 as of 9:22 a.m.

It has fallen 9.74% in the last 12 months. The relative strength index was at 58.51

Out of 49 analysts tracking the company, 45 has a 'buy' rating on the stock and four suggest a 'hold', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 21.5%