About the Company

HDFC Bank Ltd. is an Indian banking and financial services company headquartered in Mumbai, Maharashtra. It has a base of 1,04,154 permanent employees as of 30 June 2019. HDFC Bank is India’s largest private sector lender by assets. It is the largest bank in India by market capitalization as of March 2020.

Q4FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q4FY21 Q4FY20 YoY % Q3FY21 QoQ % FY21 FY20 YoY%
Sales 38018 35918 5.85% 37523 1.32% 146063 138073 5.79%
PBT 10839 9174 18.15% 11772 -7.93% 41659 36607 13.80%
PAT 8187 6928 18.17% 8758 -6.52% 31117 26257 18.51%
Consolidated Financials (In Crs)
  Q4FY21 Q4FY20 YoY % Q3FY21 QoQ % FY21 FY20 YoY%
Sales 40909 38287 6.85% 39839 2.69% 155885 147068 6.00%
PBT 11266 9682 16% 11813 -4.63% 42796 38195 12.05%
PAT 8444 7297 16% 8760 -3.61% 31857 27296 16.71%

Detailed Results

  1. The net standalone revenues rose 16.4% YoY in Q4. 
  2. NII grew 12.6% YoY to Rs 17120 Cr driven by growth in advances of 14% YoY and core NIM of 4.2%. 
  3. Other income formed 30.7% of net revenues at Rs 7593.9 Cr which was up 25.9% YoY. 
  4. The breakup of other income is: 
    1. Fees & Commissions: Rs 5023 Cr vs 4201 Cr last year. 
    2. FX & Derivatives: Rs 879 Cr vs 501 Cr last year. 
    3. Gain on sale/revaluation: Rs 655 Cr vs 565 Cr last year. 
    4. Miscellaneous Income: Rs 1036 Cr vs 766 Cr last year. 
  5. Operating expenses were up 10.9% YoY. The cost to income was at 37.2% vs 39% a year ago. 
  6. Pre-provision Operating Profit grew 19.9% YoY. Provisions and contingencies for the quarter were at Rs 4693.7 Cr.  
  7. The Total Credit Cost ratio was at 1.64%. 
  8. Standalone PAT rose 18.2% YoY in Q4. 
  9. Total Balance Sheet size rose 18.6% YoY. Total Deposits rose 16.3% YoY while CASA deposits rose 27% YoY. Time deposits grew 8.5% YoY. 
  10. Total advances rose by 14% YoY with domestic advances rose 14.1% YoY. Retail advances grew 6.7% YoY while wholesale advances grew 21.7% YoY. Retail to the wholesale mix was at 47:53. Overseas advances were at 3% of total advances 
  11. FY21 revenues grew 5.8% YoY while Profits grew 18.5% YoY. 
  12. The bank maintained a CAR of 18.8%. with Tier I CAR at 17.6%. 
  13. GNPA was at 1.32% on 31st Mar 2021. NNPA was at 0.09%. If the bank classified borrower accounts as NPA after 31st Aug 2020, Gross NPA would come out to 1.38% and NNPA would be 0.4%. 
  14. The bank maintained floating provisions of Rs 1451 Cr and contingent provisions of Rs 5861 Cr. Total provisions were at 153% of GNPAs. 
  15. The bank increased its network by 354 branches to 5608 in 2902 cities/towns in FY21. 
  16. HSL saw revenues for the quarter rose to Rs 439 Cr vs Rs 300 Cr last year. PAT was at Rs 253 Cr vs Rs 157 Cr last year. 
  17. HDB Financial Services saw a total loan books rise by 5% YoY and LCR at 265%. NII for the subsidiary grew 15.4% YoY. PAT fell to Rs 284.6 Cr from Rs 341.7 Cr last year. GNPA here was at 3.9%. CAR was maintained at 19%. 

Investor Conference Call Highlights

  1. The bank added 2 million new liability relationships in Q4 and 7 million such relationships in FY21. It also acquired 2.5 million salaried customers in FY21.  
  2. The management reported that the video KYC process was instrumental in digital CASA acquisition with the entire KYC process being reduced down to less than 5 mins.  
  3. The bank saw good growth in mid-sized corporates and SMEs aided by new-to-bank customer acquisition, deeper geographical penetration and higher utilization.  
  4. The bank also added 10,177 business correspondents in FY21.  
  5. PPoP grew by 19.9% YoY in Q4FY21.  
  6. All business lines continued their growth momentum, with the secured business of LAP and vehicle segments providing the largest contribution to sequential growth.  
  7. NII for HDB grew 15.4% YoY in Q4 due to favourable product mix & lower cost of funds.  
  8. The average internal rating of the bank’s wholesale business is at 4.24 on a scale of 1-10 where 10 is the worst and 7 is investment grade. 62% of the portfolio is rated AA or above.  
  9. The weighted average rating of the top 20 borrowers of the bank is 2.92. The average for the unsecured portfolio is 3.36 while the rating for the secured portfolio is 4.57.  
  10. The bank is 80% to 85% covered with collateral at the portfolio level.  
  11. At the current rate of growth, the MSME book is expected to surpass the private sector large corporate book in 12 to 18 months’ time frame. The management has also stated that for every rupee of lending in wholesale SME the earnings is 2.2x of equivalent lending to large corporates, considering the difference in risk profiles.  
  12. The reported slippage of 1.86% includes proforma slippage according to the management.  
  13. The MSME book is around 18% of total advances.  
  14. The management maintains that the bank is in no way constrained in capacity in terms of technology and it has even seen its market share in the merchant space rise to 50% in Jan ‘21 from 47% in Jan ‘20.    
  15. 3/4th of card sourcing is done from existing customers of the bank.  
  16. The management clarifies that all the contingent provisions are not anticipatory but precautionary and thus the change in provisions should not be seen to be related to the bank’s estimation of the impact of 2nd wave of COVID. 

Analyst’s View

HDFC Bank is the biggest bank in the country by market capitalization. It has deservedly earned its stellar reputation over the years. The bank has performed well in Q4FY21 and continued its consistent growth momentum with 27% growth in CASA. The bank has seen a good 7 million new deposit customers which highlights the market reputation of the bank. The bank’s Video KYC seems to have had a good impact with customer onboarding time reduced to less than 5 mins. It remains to be seen what economic impact will the 2nd wave of COVID-19 have to the bank and industry in general. Nonetheless, given the bank’s resilient customer set, strong liquidity profile, and enduring brand image, HDFC Bank remains an indispensable banking stock for every investor, more so because of the recent correction in valuation. 

 


 

Q3FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 37523 36039 4.12% 36069 4.03% 108046 102156 5.77%
PBT 11772 9902 18.89% 10110 16.44% 30820 27433 12.35%
PAT 8758 7416 18.10% 7513 16.57% 22930 19330 18.62%

 

Consolidated Financials (In Crs)
Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 39839 38326 3.95% 38438 3.64% 114976 108781 5.69%
PBT 11813 10249 15.26% 10378 13.83% 31530 28513 10.58%
PAT 8760 7660 14.36% 7711 13.60% 23412 20000 17.06%

Detailed Results

  1. The net standalone revenues rose 4% YoY in Q3.
  2. NII grew 15.1% YoY to Rs 16317 Cr driven by growth in advances of 15.6% YoY and core NIM of 4.2%.
  3. Other income formed 31.3% of net revenues at Rs 7443 Cr.
  4. The breakup of other income is:
  5. Fees & Commissions: Rs 4975 Cr vs 4527 Cr last year.
  6. FX & Derivatives: Rs 562 Cr vs 526 Cr last year.
  7. Gain on sale/revaluation: Rs 1109 Cr vs 677 Cr last year.
  8. Miscellaneous Income: Rs 797 Cr vs 940 Cr last year.
  9. Operating expenses were up 8.6% YoY. The cost to income was at 36.1% vs 37.9% a year ago.
  10. Pre-provision Operating Profit grew 17.3% YoY. Provisions and contingencies for the quarter were at Rs 3414 Cr. Total Provisions include Rs 2400 Cr for proforma NPA.
  11. The Total Credit Cost ratio was at 1.25%.
  12. Standalone PAT rose 18.1% YoY.
  13. Total Balance Sheet size rose 18.6% YoY. Total Deposits rose 19.1% YoY while CASA deposits rose 29.6% YoY. Time deposits grew 12.2% YoY.
  14. Total advances rose by 15.6% YoY with domestic advances rose 14.9% YoY. Retail advances grew 5.2% YoY while wholesale advances grew 25.5% YoY. Retail to the wholesale mix was at 48:52. Overseas advances were at 3% of total advances
  15. 9M revenues grew 5.8% YoY while Profits grew 18.6% YoY.
  16. The bank maintained a CAR of 18.9%. with Tier I CAR at 17.6%.
  17. GNPAs was at 0.81% on 31st Dec 2020. NNPA was at 0.09%. If the bank classified borrower accounts as NPA after 31st Aug 2020, Gross NPA would come out to 1.38% and NNPA would be 0.4%.
  18. The bank maintained floating provisions of Rs 1451 Cr and contingent provisions of Rs 8658 Cr. Total provisions were at 195% of GNPAs.
  19. HSL saw revenues for the quarter rose to Rs 337 Cr vs Rs 216 Cr last year. PAT was at Rs 167 Cr vs Rs 102 Cr last year.
  20. HDB Financial Services saw a total loan books rise by 1.6% YoY and LCR at 285%. NII for the subsidiary was at Rs 924 Cr vs Rs 971 Cr last year. PAT fell to Rs (44) Cr from Rs 217 Cr last year. GNPA here was at 2.7% while NNPA was at 1.7%. CAR was maintained at 19.5%.

Investor Conference Call Highlights

  1. HDFC bank signed up approximately 1.6 lakh village-level entrepreneurs, of which 1.02 lakh are on-boarded as business facilitators and 13,502 business correspondents. These business correspondents are not only executing financial transactions through the use of other enabled payment systems, which works on biometric authentication but also — but have also enabled them to sell multiple products, including CASA, fixed deposits, loans, including gold loan, 2-wheeler loan, car loan, tractors and home loans.
  2. The bank has also opened more than 2.3 million CASA accounts in FY21 so far.
  3. It also saw a growth of 20% YoY in savings account acquisition and 15% YoY in current account acquisition due to focus on new customer acquisition complemented with video KYC, like full KYC accounts and digitally powered smart accounts.
  4. Personal loan customers are now on-boarded through VKYC through the digital channel. VKYC will extend to auto-loans, 2-wheeler loan,s and card customers in the future.
  5. Card sales volumes were up 32% QoQ due to the festive season.
  6. Merchant acquisition volumes were also up 20% QoQ.
  7. The bank maintained an average LCR of 146%.
  8. The bank opened 231 branches during 9MFY21.
  9. Retail constituted about 80% of total deposits and 100% of incremental contribution during the quarter.
  10. The credit deposit ratio was at 85% for the current quarter.
  11. The wholesale portfolio for the bank is now at Rs 5,80,000 Cr.
  12. The gross incremental portfolio during the quarter was rated 4.37 on the 1-10 HDB scale which corresponds to the AA/AAA rating.
  13. Around 68% of the portfolio is rated HDB 5 and above, which measures into AA.
  14. The collateral coverage was between 85% and 90%.
  15. The restructuring is 0.5% of the total book.
  16. Slippages in Q3 have been at Rs 5100 Cr.
  17. Under ECGLS 1.0, HDFC Bank disbursed Rs 22,103 Cr. In ECLGS 2.0, it disbursed Rs 579 Cr across 58 customers.
  18. The management assures that the bank is working on technology upgrades and has several action plans from strengthening of the disaster recovery or the recovery point and the recovery time and automating the orchestration tool to get on to the DR side of architectural efficiencies, cloud strategy, etc.
  19. The bank is back to pre-covid levels of demand resolution and collections.
  20. The management stated that it is not fair to compare asset quality for HDB and HDFC Bank as HDB has a higher-risk customer segment than HDFC Bank’s and it operates in a different product range.
  21. Total provisions for HDB stand at Rs 800 Cr.

Analyst’s View

HDFC Bank is the biggest bank in the country by market capitalization. It has deservedly earned its stellar reputation over the years. The bank has performed well in Q3FY21 with almost 30% growth in CASA. The bank has been able to successfully capitalize on the festive season which was evident from the QoQ increase in card accounts. The bank has also launched Video KYC for personal loans and will look to expand this into other segments which should help enhance customer experience and reduce costs and improve efficiency. It remains to be seen how the post-COVID-19 recovery will pan out in the near future and whether there are any surprises in store from COVID-19 still. Nonetheless, given the bank’s resilient customer set, strong liquidity profile, and enduring brand image, HDFC Bank remains an indispensable banking stock for every investor, more so because of the recent correction in valuation.

 


 

Q2FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 36069 33755 6.86% 34453 4.69% 70523 66117 6.66%
PBT 10110 8997 12.37% 8938 13.11% 19048 17531 8.65%
PAT 7513 6345 18.41% 6659 12.82% 14172 11913 18.96%

 

Consolidated Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 38438 36131 6.39% 36699 4.74% 75137 70455 6.65%
PBT 10378 9429 10.06% 9340 11.11% 19717 18264 7.96%
PAT 7711 6649 15.97% 6941 11.09% 14652 12340 18.74%

Detailed Results

    1. The net standalone revenues rose 6.9% YoY in Q2.
    2. NII grew 16.7% YoY to Rs 15776 Cr driven by growth in assets of 21.5% YoY and core NIM of 4.1%.
    3. Other income formed 27.9% of net revenues at Rs 5589 Cr.
    4. The breakup of other income is:
      1. Fees & Commissions: Rs 3940 Cr vs 4054 Cr last year.
      2. FX & Derivatives: Rs 560 Cr vs 552 Cr last year.
      3. Gain on sale/revaluation: Rs 1016 Cr vs 481 Cr last year.
      4. Miscellaneous Income: Rs 576 Cr vs 502 Cr last year.
    5. The impact of COVID-19 on other income is estimated to be at Rs 800 Cr in Q2.
    6. Operating expenses were up 8.8% YoY. The cost to income was at 36.8% vs 38.8% a year ago. Operating expenses were lower primarily due to lower loan origination and sales volumes.
    7. Pre-provision Operating Profit grew 18.1% YoY. Provisions and contingencies for the quarter were at Rs 3703 Cr. Total Provisions include Rs 2300 Cr for proforma NPA.
    8. The specific Credit Cost ratio was at 0.47%. Core Credit Cost ratio was at 0.91% vs 0.9% a year ago and 1.08% in June 2020.
    9. Standalone PAT rose 18.4% YoY.
    10. Total Balance Sheet size rose 21.5% YoY. Total Deposits rose 20.3% YoY while CASA deposits rose 27.5% YoY. Time deposits grew 15.7% YoY. The bank maintained an LCR of 153%.
    11. Total advances rose by 15.8% YoY with domestic advances rose 15.4% YoY. Retail advances grew 5.3% YoY while wholesale advances grew 26.5% YoY. Retail to the wholesale mix was at 48:52.
    12. H1 revenues grew 6.6% YoY while Profits grew 19% YoY.
    13. The bank maintained a CAR of 19.1%. with Tier I CAR at 17.7%.
    14. GNPAs was at 1.08% on 30th June 2020. NNPA was at 0.17%. If the bank classified borrower accounts as NPA after 31st Aug 2020, Gross NPA would come out to 1.38% and NNPA would be 0.35%.
    15. The bank maintained floating provisions of Rs 1451 Cr and contingent provisions of Rs 6304 Cr. Total provisions were at 195% of GNPAs.
    16. HSL saw revenues for the quarter rose to Rs 341 Cr vs Rs 189 Cr last year. PAT was at Rs 167 Cr vs Rs 91 Cr last year.
    17. HDB Financial Services saw a total loan books rise by 2.3% YoY and LCR at 214%. NII for the subsidiary was at Rs 924 Cr vs Rs 971 Cr last year. PAT fell to rs 23 Cr from rs 213 Cr last year. GNPA here was at 4.3% while NNPA was at 3.1%. CAR was maintained at 19.6%.

Investor Conference Call Highlights

  1. The fees and commission income has been impacted by around INR 700 crores due to COVID pandemic.
  2. The bank has added 297 branches YoY and 104 branches QoQ.
  3. The bank has also added 11,931 business correspondents since last year and has added 5,589 in Q2.
  4. The reported slippage ratio is at 0.8% in the current quarter.
  5. GNPA ratio reported excluding NPAs in the agricultural segment was at 0.9%.
  6. The branch channel and other channels managed to mobilize 1.2 million customer acquisitions in the quarter ended June. The bank has added 1.8 million new liability relationships in Q2 thanks to digitization.
  7. Disbursals in Q1 were at 80-85% of last year’s levels and 2.5 times June levels.
  8. The bank added 1550 new wholesale SME customers in Q2. The bank made a disbursal of greater than Rs 5000 Cr in Q2 in this segment.
  9. The management stresses that despite the growth in assets, the bank has managed to improve NIM which should be close to the question of NIM dilution from growth in assets. Given the quality of the bank’s book, it has also seen more instances of prepayments from top-rated corporates.
  10. The bank has announced a partnership with the Apollo Hospitals Group to provide customers access to quality health care with instant financing delivered digitally.
  11. The bank has also seen a surge of gold loans with robust growth of almost 60%.
  12. In both loans against property and retail working capital loans, the bank is back at pre-covid levels.
  13. The bank has been cautious in the MFI business and expects a full-scale recovery within the next 90 days in this segment.
  14. The management reports a rise in demand of 34% for two-wheelers at the industry level.
  15. The management sees a significant opportunity to transform the automotive landscape over the next 3 to 5 years. They believe that 90% of the car purchase journeys in the industry are actually initiated online, which should facilitate the shift from physical to digital purchases in this segment. The bank aims to form a distinctive loan experience that will include a customer’s journey from search to probably test drive, maybe exchange, and a couple of sales initiatives.
  16. In the unsecured personal loan business also, the bank sees good opportunity over the next 3 to 5 months to substantially digitize the open-market acquisition.
  17. The wholesale portfolio of the bank remains at the AA rating level and at 4.4 in its 10-point (10 being riskiest) scale which is unchanged in the last 6 months.
  18. 75% of the externally rated portfolio is either AAA or AA.
  19. The management estimates that the reported 9% stressed part of the portfolio can be brought down to 3%.
  20. The non-moratorium portfolio already has a demand resolution of 99%.
  21. The collection efficiency on the moratorium portfolio as a whole is expected to be at 97%.
  22. The management maintains that although the overall economy has some ways to go before full recovery, the bank is seeing a faster recovery in operations as its customers are primarily top end corporates and the top-end salaried population segment in India who are expected to recover the fastest.
  23. The management maintains that the bank shall continue to maintain NIM at 4-4.5% range in the future.
  24. The fall in PAT in HDB financial services is mainly due to the YoY rise in provisions. Pre-provision PBT was up 10%+ for the entity.

Analyst’s View

HDFC Bank is the biggest bank in the country by market capitalization. It has deservedly earned its stellar reputation over the years. The bank has performed well in Q2FY21 with more than 20% growth in Balance Sheet and advances. It is a testament to the bank’s brand image that the bank is able to bring back operations to pre-covid levels in almost all of its operating segments. The management remains optimistic about the potential opportunity for the bank from digitization and its role in creating never before seen user experience journeys in diverse segments like unsecured personal loans and car loans. It remains to be seen how the whole COVID-19 scenario will pan out in the near future and whether there are any surprises in store from it still. The bank has seen its iconic CEO Mr. Aditya Puri step down and the new CEO Mr. Sashidhar Jagdishan assumes the post. Nonetheless, given the bank’s resilient customer set, strong liquidity profile, and enduring brand image, HDFC Bank remains an indispensable banking stock for every investor, more so because of the recent correction in valuation.


 

Q1FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 34453 32363 6.46% 35918 -4.08%
PBT 8938 8534 4.73% 9174 -2.57%
PAT 6659 5568 19.59% 6928 -3.88%

 

Consolidated Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 36699 34324 6.92% 38287 -4.15%
PBT 9340 8835 5.72% 9682 -3.53%
PAT 6941 5691 21.96% 7297 -4.88%

Detailed Results

    1. The net standalone revenues rose 6.5% YoY in Q1.
    2. NII grew 17.8% YoY to Rs 15665 Cr driven by growth in advances of 20.9% YoY and growth in deposits of 24.6% YoY.
    3. Other income formed 20.06% of net revenues at Rs 4075 Cr vs Rs 4970 CR last year.
    4. The breakup of other income is:
      1. Fees & Commissions: Rs 2231 Cr vs 3552 Cr last year.
      2. FX & Derivatives: Rs 437 Cr vs 577 Cr last year.
      3. Gain on sale/revaluation: Rs 1087 Cr vs Rs 875 Cr last year.
      4. Miscellaneous Income: Rs 321 Cr vs Rs 630 Cr last year.
    5. The impact of COVID-19 on other income is estimated to be at Rs 2000 Cr.
    6. Operating expenses were down 2.9% YoY. The cost to income was at 35% vs 39% a year ago. Operating expenses were lower primarily due to lower loan origination and sales volumes.
    7. Pre-provision Operating Profit grew 15.15 YoY. Provisions and contingencies for the quarter were at Rs 3891.5 Cr
    8. Standalone PAT rose 19.6% YoY.
    9. Total Balance Sheet size rose 22.1% YoY. Total Deposits rose 24.6% YoY while CASA deposits rose 26% YoY. Time deposits grew 23.7% YoY. The bank maintained an LCR of 140%.
    10. Total advances rose by 20.9% YoY with domestic advances rose 21% YoY. Retail advances grew 7.2% YoY while wholesale advances grew 37.6% YoY. Retail to the wholesale mix was at 48:52.
    11. The bank maintained a CAR of 18.9%. with Tier I CAR at 17.5%.
    12. GNPAs was at 1.36% (1.2% excluding agricultural NPAs) on 30th June 2020. NNPA was at 0.33%.
    13. The bank maintained floating provisions of Rs 1451 Cr and contingent provisions of Rs 4002 Cr. Total provisions were at 149% of GNPAs.

Investor Conference Call Highlights

  1. During the quarter, the bank acquired 1.2 million liability customers.
  2. The bank will keep on digitizing current accounts onboarding, video KYC, and so on to supplement its existing digital offering. 95% of bank branches are operational.
  3. At the time of the call, the bank had already launched its video KYC on a limited pilot basis. This capability will be scaled up in Q2.
  4. Payment business volumes, both acquiring and issuance saw a bounce back to about 70% of Jan 2020 levels in June.
  5. Incorporate and wholesale banking, the bank went in for AAA corporates only. Overall, the bank improved the risk rating of its balance sheet by 30 bps to 4.3%.
  6. The company has restricted consumer loans until the recovery comes back. The management hopes recovery to come back by September.
  7. Retail originations fell by 70% during the quarter, both as a combination of tightening of credit standards as well as some amount of pessimism in the borrowers.
  8. Personal loans saw a drop of 86% in originations. Credit cards dropped by 87%, and spends fell by 40%, leading to a book contracting by 4.5% during the quarter.
  9. The management has stated that the company has set a goal that to provide frictionless service, benchmarking against an Amazon or a Google, with an enjoyable customer journey across a wide product range and geography in the most convenient manner to the customers.
  10. The company is 65th in brand recognition globally, among all global companies.
  11. The company has changed its technology from core banking to middleware, to enterprise, and now SaaS to be able to deliver across all channels an Omni-channel experience.
  12. The company has added 6,381 business correspondents, managed by Common Service Centres, including 1,002 opened during the quarter. It also has around 200 branches are in various stages of readiness to open in a short time.
  13. The annualized slippage in the quarter is at 1.2%.
  14. The core credit costs were at 1.08% of advances.
  15. Corporate collections in April 2020 was at 45% of last year’s level. May collections rose 47% MoM and June increased 38% MoM and was at 94% of last year’s June level.
  16. An analysis of top 25 disbursements by value in TLTRO 1.0 during the quarter showed that 46.5% was ultimately towards CapEx; 30.2% was towards working capital requirements; 9.5% was for supporting other banks and market participants with liquidity through participatory certificates and secondary purchases; 7.5% comprised of other reasons, including availing existing lines for building liquidity buffers; and the balance, 6.3%, was towards on lending for PSL purposes.
  17. The bank saw a significant increase in electronic straight-through processing transactions in its collections and payments businesses from 86% in June 2019 to 94% in June 2020.
  18. Average Corporate CASA grew 37% YoY and average corporate FDs grew 31% YoY.
  19. 86% of the externally rated portfolio is either AAA or AA in the corporate lending space.
  20. In terms of historical trends of delinquency, there is a 55% lower probability of default in the unsecured wholesale book than there is in the secured wholesale book.
  21. 68% of the new-to-bank disbursements had a ticket size of less than Rs 1 Cr in the wholesale SME lending space.
  22. The bank acquired 533 new SME customers in Q1. Collateral cover for the new-to-bank disbursements for 89% of the cases was greater than 100%.
  23. In gold loans, originations fell 15% but the book was up by 3% at the same time.
  24. The unsecured portfolio primarily consists of the personal loan, the business loan, and the credit card. The personal loans are given entirely to salaried individuals only. For customers in the moratorium portfolio, 98% of them continue to receive salary credits and 97% are 0 DPD customers.
  25. Auto loans are moving to 60-70% of pre-COVID levels.
  26. The management has stated that the bank will remain cautious and maintain tight filters for unsecured loans despite a massive fall in originations in this segment.
  27. The bank is comfortable with 4.7% of the 9% high-risk assets. It has thus created further contingent provisions for the remaining 4.3%.
  28. The management maintains that the bank has excellent capital adequacy and a great portfolio and it does not need to raise any external capital at the moment.
  29. The management maintains that the bank will continue to maintain NIMs at 4.1-4.5% band. This is mainly due to its robust risk-based price methodology which ensures that ensures that the bank knows what is the minimum return that it needs to get from each and every product, net of cost, and net of expenses.
  30. The management remains confident of the succession planning for the top posts within the bank.
  31. From the first moratorium customers, 70% of them paid up their June installments.
  32. The bank has kept both Moratorium 1 & 2 as opt-in only.
  33. Retail to wholesale fees remains at close to 90:10.
  34. The management maintains that the bank is not chasing growth and will only do business as long as the bank’s credit criteria are met.

Analyst’s View

HDFC Bank is the biggest bank in the country by market capitalization. It has deservedly earned its stellar reputation over the years. The bank has performed well in the first quarter of FY21 with more than 22% growth in Balance Sheet and advances. It is a testament to the bank’s brand image that the bank saw deposits and advances growth even in times of COVID-19.

The management has assured that the bank has adapted to the new normal due to the COVID-19 disruption and that its balance sheet and customer set are resilient enough to weather the uncertainty ahead. It maintains that  98% of customers under moratorium have not seen any decline in salaries and thus the bank is safe from any negative surprises coming from the moratorium ends. It remains to be seen how the whole COVID-19 scenario pans out and how it changes consumer behaviour especially for the banking industry going forward. Nonetheless, given the bank’s resilient customer set, strong liquidity profile, and enduring brand image, HDFC Bank remains an indispensable banking stock for every investor, more so because of the recent correction in valuation.


 

Q4 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 35918 31204 15.11% 36039 -0.34% 138073 116598 18.42%
PBT 9174 8954 2.46% 9902 -7.35% 36607 32200 13.69%
PAT 6928 5885 17.72% 7416 -6.58% 26257 21078 24.57%

 

Consolidated Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 38287 33260 15.11% 38326 -0.10% 147068 124108 18.50%
PBT 9682 9583 1.03% 10249 -5.53% 38195 34318 11.30%
PAT 7297 6311 15.62% 7660 -4.74% 27296 22446 21.61%

 

Detailed Results

    1. The net standalone revenues rose 18.2% YoY in Q4.
    2. Pre-provision operating profit rose 19.5% YoY.
    3. The net interest margin was 4.3%.
    4. Other income formed 28.4% of net revenues.
    5. The breakup of other income is:
      1. Fees & Commissions: Rs 4201 Cr vs 3665 Cr last year.
      2. FX & Derivatives: Rs 501 Cr vs 403 Cr last year.
      3. Gain on sale/revaluation: Rs 565 Cr vs Rs 229 Cr last year.
      4. Miscellaneous Income: Rs 766 Cr vs Rs 574 Cr last year.
    6. The impact of COVID-19 on other income is Rs 450 Cr.
    7. Operating expenses rose 16.3% YoY.
    8. PAT rose 18% YoY.
    9. Total Balance Sheet size rose 23% YoY. Total Deposits rose 24.3% YoY while CASA deposits rose 23.9% YoY.
    10. Total advances rose 21.3% YoY with domestic advances rose 21.4% YoY. Retail advances grew 14.8% YoY while wholesale advances grew 28.2% YoY.
    11. The bank maintained a CAR of 18.5%.
    12. GNPAs was at 1.26% (1.1% excluding agricultural NPAs) on 31st March 2020.
    13. The bank maintained floating provisions of Rs 1451 Cr and contingent provisions of Rs 2996 Cr. Total provisions were at 142% of GNPAs.
    14. In HDB, consolidated net profit rose 15.5% YoY while advances grew 20.1% YoY.

Investor Conference Call Highlights

  1. The bank has taken all adequate measures to ensure the safety of employees and customers across all of the bank’s locations.
  2. The management is confident that the bank is well-positioned to expand its market share.
  3. The management has also mentioned that the rate of rejection has risen as a consequence of stricter requirements and the loan approval process.
  4. The company added 315 branches in FY20 with 71 added in Q4. Around 250 branches are in various stages of readiness to open in a short time.
  5. The cost-to-income has remained stable at 39%.
  6. The total credit cost in Q4 was at 151 bps with COVID-19 impact of 62 bps.
  7. The bank got a reaffirmed standalone credit rating of BBB+ from S&P and is the only bank in the country with this rating which is even above the BBB- for India.
  8. Retail lending is expected to stay subdued for the next few quarters.
  9. The main growth for the bank came from lending to liquidity rich companies (MNCs & PSUs) and epidemic resistant sectors like power.
  10. 6% of all funds disbursed to corporates in Q was used for working capital requirements.
  11. The management ensures that the bank did not relax its high-risk assessment criteria during its growth at all.
  12. The bank gained over 1500 SME clients in Q4.
  13. About 85% of disbursement in Q4 had collateral in excess of 100% and 65% of the total book was allocated to priority sector lending areas.
  14. The management believes that the bank should stay stable due to flight to safety in times of economic distress and more high-quality borrowers would approach the bank for stable funding.
  15. The management stresses that the retail unsecured lending for the bank has been robust with lower than industry average delinquency. This is mainly due to the extensive risk assessment done by the bank and the extensive internal credit rating done by the bank.
  16. The SME loan book is 77% collateralized using real estate properties owned by the promoters of the borrowing SMEs.
  17. The bank conducted stress tests of 3 scenarios namely- normal, strong, and extreme stress. In the strong stress case, the bank found that 9% of the portfolio will be impacted and may not be able to fulfill payment obligations. This case is without taking into account any concessions provided by the bank as mandated by regulatory bodies like the RBI moratorium.
  18. The bank has not received many applications for the loan moratorium and the management stresses that it is still too early to assume anything in this area.
  19. The management has stated that they arrived at the current level of contingent provisions by assuming collection efficiency to be 0 in April, less than normal in May, and near normal in June.
  20. In retail accounts, around 95-98% of moratorium applicants were not in the default state, and according to the bank survey, the customers had mostly applied to it out of caution. The bank has not specified any cut-off date for the moratorium application.
  21. The management has stated that because of the rising financial stress in the past year in the economy, the bank has been continually refining all of its credit policies and filtering mechanisms for all kinds of products and thus the bank stands in a much better position to deal with the current financial uncertainty as compared to a year ago.
  22. The management has clarified that according to the strong stress test case, the rise in NPAs would not be 9% rather it would be 0.5% incrementally only.
  23. The AUM growth in HDB was modest at 6%.
  24. The cost of deposits has come down 15-20 bps in Q4.
  25. Over 80%% of the unsecured book is loaned out to salaried professionals where around 80% work at MNCs and big AAA-rated corporates.
  26. The company is also focussing on digitizing as many processes as it can and due to the COVID-19 scenario, the company’s plans to do so have been on overdrive.
  27. The management expects the cost-to-income to decline going forward. It also expects the impact of COVID-19 on revenues should be there for the next 2 quarters.
  28. The management has not seen any significant change in farm NPA levels in Q4.
  29. HDB provided an opt-out facility for the moratorium as opposed to the opt-in facility that the HDFC bank had done.
  30. The management believes that as long as the mix of wholesale to retail is maintained at near about 50-50, the ALM should be maintained at current levels.
  31. The bank has an MFI exposure of Rs 8500 Cr. It has already done a 25 bps cut in savings rate on 15th April and thus is not expected to do another cut anytime soon.
  32. The investment book rose from Rs 3.1 trillion to Rs 4 trillion. This was mainly due to the big increase in new deposits and the not so high increase in lending which resulted in excess cash which was invested according to the management.
  33. The management is still assessing potential partners for participation in LTRO 2.0.

Analyst’s View

HDFC Bank is the biggest bank in the country by market capitalization. It has deservedly earned its stellar reputation over the years. The bank has performed very well in the last quarter of FY20 with more than 21% growth in Balance Sheet and advances. It is a testament to the bank’s brand image that deposit growth has outpaced advances growth considering the size and reach of the bank.

The management has assured that the bank has adapted to the new normal due to the COVID-19 disruption and that its balance sheet and customer set are resilient enough to weather the uncertainty ahead. It remains to be seen how the whole COVID-19 scenario pans out and how it changes the world and especially the banking industry going forward. Nonetheless, given the bank’s resilient customer set, strong liquidity profile, and enduring brand image, HDFC Bank remains an indispensable banking stock for every investor, more so because of the recent correction in valuation.

 

Disclaimer

This is not a piece of investment advice. Please read our terms and conditions.