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HDFC Bank is expected to announce strong profit growth for the fourth quarter of 2021-22, driven by jump in net interest income and drop in provisions against bad loans, according to analysts. India's largest private sector lender is scheduled to announce its Q4 results on Saturday. HDFC Bank's financial result is keenly watched as it will be first earnings after the announcement of proposed merger with Housing Development Finance Corporation (HDFC).

However, after posting a sharp jump on the day of the announcement of the merger, HDFC Bank shares have given up all the gains. After rising 10% on April 4 to 1,656.80, HDFC Bank shares are now down to 1,464.95 (Wednesday's closing).

According to brokerage firm Edelweiss, HDFC Bank's net profit is expected to increase by 24% to 10,183 crore in January-March 2022 quarter. During January-March 2021 quarter HDFC Bank had reported 8,186 crore net profit. Axis Securities expects 26.8% increase while Kotak Securities has projected 19% increase in HDFC Bank's profit.

The net interest income, the difference between interest earned and interest expended, of HDFC Bank is likely to be supported by healthy loan growth; NIMs to remain stable QoQ while fee income likely to improve. But lower treasury income to drag non-interest income," Axis Securities said.

On the other hand, “controlled cost to support operating profit growth while slippages are expected to moderate QoQ and asset quality to improve," the brokerage added.

On a year-on-year basis, HDFC Bank is expected to NII growth of 13.7% to 19,458 crore while provisions for bad loans likely to fall 19% to 3795 crore. 

Key monitorables for HDFC Bank include growth outlook on each segment and commentary on credit card segment, Axis Securities added.

The Board of Directors of HDFC Ltd and HDFC Bank at a meeting held earlier this month approved a proposal of the merger of the two leading financial institutions. As per the terms of the deal, shareholders of HDFC Ltd will receive 42 shares of HDFC Bank for 25 shares held. Existing shareholders of HDFC Ltd will own 41 per cent of HDFC Bank.

Many analysts had welcomed the proposed merger. “This merger will create a financial behemoth, which is still expected to grow at 20%+ rates and may create better profitability with cost synergies. This is also good news for customers with consolidation of services under one entity. RBI has been tightening up the regulatory framework for NBFCs and therefore the pros of keeping bank and NBFCs as separate entities were diminishing. It looks like an excellent move benefiting all stakeholders which was also quite successfully kept under wraps till the actual announcement," said Mohit Ralhan, Managing Partner at TIW Capital Group. (With Agency Inputs)

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