HDFC Bank Q4 Update Review: Deposit Growth Commendable, Say Brokerages

HDFC Bank Ltd.'s quarter-on-quarter increase in deposits was higher than the widely expected level, according to brokerages.

The private lender added Rs 1.66 lakh crore worth of deposits in the March quarter, led by the growth in wholesale deposits. Deposits grew 7.5% quarter-on-quarter to Rs 23.8 lakh crore in the quarter ended March 31, according to an exchange filing on Thursday.

The figures are provisional in nature and not comparable year-on-year as HDFC Bank concluded the merger with Housing Development Finance Corp. in July 2023.

The banks' deposit mobilisation in the fourth quarter has been strong, reflecting the strength of the franchise. However, a continued need to bring down its loan-to-deposit ratio will weigh on the medium-term loan growth, according to Nomura Research.

Its estimates currently build in a 15% compound annual growth rate in loans over financial year 2024–26, which has downside risks, according to an April 4 note.

• The research firm maintains a 'buy' rating on the stock with a target price of Rs 1,750 apiece, implying a potential upside of 14.6%.

• HDFC Bank can deliver 15–20% incremental market share in deposits in the medium term, which would allow it to grow loans at 13–15% year-on-year.

• The NIM may have compressed 15 basis points sequentially.

• Despite the change in loan mix towards corporate loans, the decline in the LDR and a potential increase in liquidity will pressure NIM. "Such NIM compression should be expected, given the balance-sheet readjustment in the quarter."

• A stake sale in Credila and any write-back in the alternative-investment-fund provisions can help the bank report 1.9% return on assets in the quarter.

• Morgan Stanley maintains an 'overweight' rating on the stock with a target price of Rs 1,900 apiece, implying a potential upside of 28%.

• Better-than-expected loan growth and margin progression.

• Faster-than-expected improvement in operating leverage and lower-than-expected asset quality stress.

Risks To Downside

• Sharp slowdown in economic growth weighing on loan growth and resulting in higher non-performing loans.

• Weaker-than-expected progression on deposit growth and margins.

• Nomura reiterates a 'neutral' rating on the stock with a target price of Rs 1,625 apiece.

• A run-off in low-yielding corporate loans could support the NIMs in the fourth quarter.

• Liquidity built up through stronger deposit mobilisation can also weigh on near-term NIMs.

• "We expect flattish NIM trends in 4Q, but this will be the key monitorable from the results on 20 April, in our view," Nomura said.

• "The moderation in loan growth has been ostensibly led by a need to bring down HDFC Bank's elevated LDR, in our view, where the bank has done well."

HDFC Bank's stock rose as much as 1.01% during the day to Rs 1,543 apiece on the NSE on Friday. It was trading 0.90% higher at Rs 1,541.35 per share, compared to a 0.17% decline in the benchmark Nifty 50 as of 10:14 a.m.

Forty-five out of the 50 analysts tracking the company have a 'buy' rating on the stock and five recommend 'hold', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 23.1%.