HDFC Bank Q3 results today: Expect double-digit growth in net profit; high cost of funds to impact NIM

HDFC Bank is set to announce its December quarter earnings on Tuesday, January 16. Analysts and brokerage firms expect the bank to report overall healthy numbers for the December quarter. However, the net interest margins (NIMs) could see the pressure of the high cost of funds.

Earlier this month HDFC Bank announced its gross advances aggregated to ₹24,69,500 crore as of December 31, 2023, registering a growth of around 62.4 per cent over ₹15,20,500 crore as of December 31, 2022.

Domestic retail loans jumped 111 per cent year-on-year (YoY), and around 3 per cent quarter-on-quarter (QoQ). Commercial and rural banking loans grew by 6.5 per cent and corporate and other wholesale loans (excluding non-individual loans of the erstwhile HDFC Limited) grew by 2 per cent sequentially.

The Bank’s CASA ratio stood at around 37.7 per cent as of December 31, 2023, as compared to 44 per cent as of December 31, 2022 and 37.6 per cent as of September 30, 2023.

Also Read: HDFC Bank Q3 Update: Gross advances rise 62.4% to ₹24.69 lakh crore; deposits up 27.7% YoY

Shreyansh Shah, a research analyst at StoxBox expects the bank to have strong business growth due to increased branches and effective execution from the sales team, which was aided by the festive season.

As per Shah's estimates, the deposits are likely to witness healthy growth in Q3FY24 due to attractive interest rates and increased mobilisation of term deposits (TDs). However, its CASA may have a marginal impact due to increased traction in the TDs.

NIMs are likely to be range-bound between 3.4 per cent and 3.6 per cent due to the high cost of funds.

"We expect an improvement in profitability and return ratios due to increasing disbursements, mainly to construction finance. As HDFC Bank has taken care of the non-retail book of erstwhile HDFC Ltd. in the previous quarter itself, we do not foresee further run down in asset quality in the current as well as upcoming quarters," said Shah.

Going ahead, Shah expects the bank to have a healthy liquidity coverage ratio due to the merger effect, with return ratios aided by robust growth visibility in the top line from various loan segments. Additionally, a better mix of loan originations, particularly focused on the retail shift, would help the bank to outperform its peers in the industry.

The estimates of brokerage firm Motilal Oswal Financial Services show HDFC Bank can report a 32.5 per cent YoY rise in net profit while net interest income can rise 26.8 per cent YoY in Q3FY24.

Operating profit of HDFC Bank, according to Motilal Oswal, can rise 26.2 per cent YoY.

"Business traction is expected to remain healthy. Asset quality for the merged entity is expected to remain broadly stable. Margins are likely to see slight improvement from the 2Q lows. Business growth and earnings trajectory are key monitorables," said Motilal Oswal.

Kotak Institutional Equities expects HDFC Bank's gross NPL ratio to be stable. As per the brokerage firm, the near-term focus would be on the progress of NIM and the impact of PSL (FY25).

"We should have more comfort on some moving variables after Q3FY24. Key variables to keep a watch on are (1) the steady state of cost of funds (reversal of ICRR to normalcy this quarter) and (2) yield on loans. The liability backbook of HDFC Bank still needs to be re-priced upward, exerting pressure on any NIM expansion argument," said Kotak.

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