HDFC Bank, the largest private sector lender in the country, will announce its earnings for the second quarter of FY24 on Sunday, October 15. This will be the first quarterly financial result of HDFC Bank after it was merged with mortgage lender Housing Development Finance Corporation (HDFC) effective July 1.
The overall banking sector is expected to see healthy credit growth in the quarter ended September, but margins are likely to compress due to cost catch-up and the impact of Incremental Cash Reserve Ratio (ICRR).
Analysts expect the creation of excess liquidity could affect the net interest margin of HDFC Bank in Q2FY24. However, margins should bounce back in H2FY24 as credit growth picks up and liquidity is utilized.
According to Emkay Global Financial Services, HDFC Bank is expected to be hurt by sharp margin contraction post the merger.
In its quarterly business update, HDFC Bank reported a robust 57.7% growth in its gross advances at ₹23.54 lakh crore as of September 30, 2023, rising from ₹14.93 lakh crore last year.
Its deposits aggregated to approximately ₹21.73 lakh crore in Q2FY24, a growth of around 29.9% over ₹16.73 lakh crore as of September 30, 2022.
Read here: HDFC Bank Q2 Update: Advances grow 57% to ₹23.54 lakh crore, home loans rise 10% YoY after merger
Emkay Global estimates HDFC Bank’s net interest income in Q2FY24 at ₹27,874 crore, up 8.6% YoY and down 3.6% QoQ. Net interest margin (NIM) is expected to be at 4.1%, down 5 bps sequentially and up 9 bps YoY.
The brokerage expects the bank to post a net profit of ₹6,045 crore in the September quarter.
“After a sharp margin downtrend in the past two quarters, the bank expects margin contraction to be contained in Q2. This coupled with contained provisions is expected to support profitability. Slippages are likely to remain largely flat QoQ; there are no signs of incremental stress as of now,” Emkay Global said.
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Motilal Oswal Financial Services expects the lender’s margins to moderate sequentially and loan growth to remain in check. Asset quality for the merged entity is expected to increase.
The brokerage expects net profit to grow 39.4% YoY to ₹14,780 crore, while NII to rise 33.6% YoY to ₹28,090 crore.
“On a like-for-like basis, sequential loan growth has been 4.9%. NII growth will be materially slower than loan growth due to cost of deposits catch up and excess liquidity. Consequently, NIM will be materially lower sequentially. Sequential fee income growth will broadly match loan growth. Opex growth will slightly lag loan growth. Slippages would be broadly stable on a sequential basis. Provisions will be broadly stable due to prudential provisioning,” YES Securities said.
Also Read: Infy, HCL cut FY24 growth forecast
According to analysts at Prabhudas Lilladher, Gross NPAs could see an improvement of 6 bps QoQ to 1.34% while they expect provisions to remain flat.
HDFC Bank shares have remained under selling pressure and have been the worst performing banking-stocks in 2023 so far. HDFC Bank share price has fallen over 5% year-to-date (YTD) and is down more than 6% in the last one month.
On Friday, HDFC Bank shares ended 0.85% lower at ₹1,536.75 apiece on the BSE.
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