HDFC Bank to focus on improving return on assets: CEO

  • HDFC Bank reported a 37% y-o-y growth in net profit in Q4 on higher net interest income and HDFC Credila stake sale. It reported a sequential growth of 0.85% in net profit owing to higher provisions and lower growth in net interest income - the difference between interest earned and paid.

Gopika Gopakumar
First Published21 Apr 2024
Bank's CEO said that sustainability of retail deposits is key for the bank, for which it will continue investing in distribution, people and technology.
Bank’s CEO said that sustainability of retail deposits is key for the bank, for which it will continue investing in distribution, people and technology.(Bloomberg)

Mumbai: HDFC Bank will focus on profitability over growth in the medium term as the country's largest private lender faces the dual challenge of higher credit to deposit profile and lower core income.

Addressing investors and analysts in an earnings conference call, Shashidhar Jagdishan, CEO of HDFC Bank, said that sustainability of retail deposits is key for the bank, for which it will continue investing in distribution, people and technology.

After the stock took a severe beating following a disappointing third-quarter results, Jagdishan has been careful not to give any guidance this time.

"Our focus is to improve profitability matrix defined by return on assets (RoA) and earnings per share. Most important is focus in retail deposit franchise. That's not going to be achieved by shortcuts we take. Key to sustainable momentum is our enhanced customer engagement and elevated service-first culture," said Jagdishan. "We have realised that providing guidance is a kind of distraction for long-term objectives," he added.

Read more: Q4 Results: HDFC Bank declares dividend 19.50 per equity share

HDFC Bank reported a 37% year-on-year growth in net profit in January-March on higher net interest income and stake sale in its education finance arm HDFC Credila. The bank, however, reported a sequential growth of 0.85% in net profit owing to higher provisions and lower growth in net interest income - the difference between interest earned and paid.

Net interest income, or core income, grew 2% quarter-on-quarter to 29,077 crore in January-March of 2024. Other income rose 63% sequentially to 18,166 crore, helped by a one-time gain of 7,341.4 crore from the sale of HDFC Credila to BPA EQT and Chrys Capital. Net interest margin (NIM) stood flat at 3.4%.

Asset quality remained stable, with gross non-performing assets (NPA) ratio of 1.24% at the end of March, compared with 1.3% in the previous quarter. Similarly, net NPA as a percentage of total assets increased marginally to 0.33% from 0.31% in the previous quarter.

HDFC Bank saw a three-fold jump in provisions to 13,500 crore at the end of March 2024. This included floating provisions of 10,900 crore to cover for potential losses in future. The increase in provisions comes from the one-time gains from the sale of HDFC Credila.

Th bank also saw a reversal of provisioning againsts alternate investment fund (AIF) amounting to 185 crore during the quarter. The bank had made AIF provisioning worth 1,220 core in the third quarter.

"The bank has considered this as an opportune stage to enhance its floating provisions, which are not specific to any portfolio, but act as a countercyclical buffer for making the balance sheet more resilient, and these also qualify as tier 2 capital within the regulatory limits," said the bank in its press release.

Advances grew 1.6% sequentially to over 25 trillion at the end of March 2024. Deposits grew 7.5% to 23.8 trillion during the same period.

The bank saw a 1.6 trillion increase in total deposits during the January-March quarter. Of this, 1.3 trillion came from retail deposits. As of March 31, 84% of the bank's total deposits are retail in nature. The bank's credit to deposit ratio reduced to 105% from 110% in the previous quarter. During the call, Jagdishan said that CD ratio will remain muted as the bank will have to pay maturities on HDFC's bonds.

HDFC Bank also announced a dividend of 19.5 per equity share of 1 for the fiscal year ended March 31, 2024. It also received the board's approval to raise 60,000 crore of tier 2 capital through bond instruments.

"HDFC Bank reported broadly in-line performance in Q4FY24. YoY numbers are not comparable as this is the third quarter reported on merged basis. Outcome on NIMs were slightly better than expectations. Core credit cost continued to remain lower. Higher other income driven by stake sale gain in HDFC Credila / tax reversal provisions offset higher opex and higher contingent provisions impact on RoA, thus bank managed to sustain RoA at ~1.9%," said Rahul Malani, research analyst, Sharekhan by BNP Paribas. "We should see bank gradually recouping the margins as the bank substitute the high-cost borrowings with deposits and the changing loan mix towards retail over the next couple of quarters."

Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.MoreLess
HomeIndustryHDFC Bank to focus on improving return on assets: CEO

Most Active Stocks

Bharat Electronics

291.25
05:36 AM | 29 MAY 2024
2.15 (0.74%)

Tata Steel

174.00
05:35 AM | 29 MAY 2024
-0.85 (-0.49%)

Zee Entertainment Enterprises

152.65
05:36 AM | 29 MAY 2024
1.75 (1.16%)

Bandhan Bank

192.15
05:35 AM | 29 MAY 2024
1.85 (0.97%)
More Active Stocks

Market Snapshot

  • Top Gainers
  • Top Losers
  • 52 Week High

Grindwell Norton

2,565.95
05:26 AM | 29 MAY 2024
175.3 (7.33%)

Great Eastern Shipping Company

1,068.90
05:26 AM | 29 MAY 2024
58.25 (5.76%)

One 97 Communications

359.55
05:26 AM | 29 MAY 2024
17.1 (4.99%)

Aa Plus Tradelink

21.68
04:54 AM | 29 MAY 2024
1.02 (4.94%)
More from Top Gainers

Recommended For You

    More Recommendations

    Gold Prices

    • 24K
    • 22K
    Bangalore
    74,460.00970.00
    Chennai
    74,532.0031.00
    Delhi
    74,243.00464.00
    Kolkata
    73,520.00102.00

    Fuel Price

    • Petrol
    • Diesel
    Bangalore
    99.84/L-0.05
    Chennai
    100.75/L0.00
    Kolkata
    103.94/L0.00
    New Delhi
    94.72/L0.00
    OPEN IN APP
    HomeMarketsPremiumFor youGet App