As usual, private sector lender HDFC Bank Ltd’s March quarter (Q4) results met analysts’ expectations.

Net profit in the March quarter stood at Rs4,799 crore, up 20% on a year-on-year basis (y-o-y) and a record high, thanks to robust growth in “other income".

Net interest margin remained at 4.3% and asset quality too was largely stable.

Gross non-performing assets (NPAs) as a percentage of gross advances during Q4 marginally deteriorated on a sequential basis, but the net NPA ratio improved.

While HDFC Bank Ltd has remained fairly immune to the corporate bad loan issues faced by other lenders, investors in the stock would need to watch some key trends.

For instance, its overall loan book, which grew 18.7% y-o-y in Q4, saw its retail loan book rising at a faster pace than the wholesale loan book. It should be noted that its loan book has clocked 20% plus growth in previous quarters (see chart).

“This time the corporate loan book grew at a slower pace and one should bear in mind that could have been a conscious decision by the management to go slow here after the events that unfolded with Punjab National Bank. And in the current environment, we do not expect the bank to aggressively push its corporate loan book," said Siddharth Purohit, an analyst at SMC Institutional Equities.

This means for the overall loan book to sustain at healthy levels, retail loan book growth should maintain this momentum. HDFC Bank is better placed than its peers to increase market share, but increasing penetration of small finance banks and NBFCs in this segment would keep competitive intensity high.

The bank’s unsecured loans have grown at a rapid pace, which is a concern because any increase in retail delinquencies could erode the bank’s asset quality going ahead, analysts said. Its home loan segment has also not grown much.

Lastly, analysts should also track the bank’s fund raising plan.

The board approved issue of perpetual debt instruments (part of additional tier I capital), tier II capital bonds and long-term bonds (financing of infrastructure and affordable housing) up to Rs50,000 crore in the next 12 months through private placement, subject to approval of shareholders.

Nitin Aggarwal, vice-president and banking analyst at Motilal Oswal Institutional Equities Ltd, sees the shareholders’ nod as one of the key triggers for the HDFC Bank Ltd stock since it indicates that the bank is focusing on its growth in the next phase.

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