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HDFC Bank shares tanked 7% post-Q3 earnings

HDFC Bank Group gets RBI nod to acquire up to 9.5% stakes in Yes Bank, IndusInd & 4 others

Benchmark heavyweight stock HDFC Bank has been the party crasher following the release of its quarterly results. The bank posted flat margins for the second consecutive quarter. The weakness in the market was expected as the ADR fell in the US, and the bank also commands over 14% weightage on the Nifty 50 index, which is the highest among constituents. HDFC Bank ADR, the US-listed shares of the bank, tanked 6.7% on the NYSE to $61, the biggest single-day drop since April 2022, and on domestic exchange, the stock made a gap-down, opening more than 5% lower after.

The country's largest private sector lender reported 33% growth in net profit at Rs. 16,372 crore, compared to Rs. 12,259 crore for the October–December period, which was in line with the Street estimate but included a one-time tax rate gain.

HDFC Bank's net interest income (NII) grew 24% year over year to Rs 28,470 crore during the quarter, falling below street estimates. Provisions in the December quarter increased to Rs. 4,217 crore from Rs. 2,806 crore a year ago and Rs. 2,904 crore a quarter ago. The contingent provisions are on account of investments in alternative investment funds.

The consolidated total income rose to Rs. 1,15,015 crore compared to Rs. 54,123 crore at the end of the same quarter the previous year. Net revenue grew 25.8% to Rs. 39,600 crore in the December quarter. This is HDFC Bank's second earnings report since its merger with parent Housing Development Finance Corp. (HDFC) in July.

The bank staged an improvement in its asset quality, with gross NPAs down to 1.26 percent and net NPAs to 0.31 percent, as of December 31, from 1.34 percent and 0.35 percent, respectively, three months ago. Gross NPA has seen improvement Q-o-Q in the retail and wholesale segments.

HDFC Bank's pre-provision operating profit (PPoP) grew by more than 24 percent year-on-year to Rs. 23,647.30 crore. The total credit cost ratio was 0.49 percent in the December quarter, compared to 0.74 percent a year ago.

The private lender's total advances rose 64.4% to Rs. 24.69 lakh crore, with domestic retail loans growing by 111%, commercial and rural loans rising by 31.4%, and corporate and wholesale loans rising by 11.2%. In the October-December quarter, HDFC Bank's total deposits jumped by 27.7% to Rs. 28.47 lakh crore, compared to Rs. 22.29 lakh crore in the corresponding quarter last year. Current account and savings account deposits grew by 9.5%.

Banks’ cost of funds (incl. Shareholders' funds) has witnessed a sharp increase from 4% in the June quarter to 4.9% in the December quarter, whereas yield on assets is increasing at a slower pace from 8.1% in the June quarter to 8.3% in the December quarter.

Other income has been flat, with net trading and MTM income witnessing an increase of 50% from Rs. 1000 crore in the previous quarter to Rs. 1500 crore in the Dec quarter.

According to Srinivasan Vaidyanathan, Chief Financial Officer (CFO), HDFC Bank, the bank plans to have over 13,000 branches in the next three to five years. The lender added 908 branches in the last twelve months and 146 branches in the last quarter.

HDFC Bank's non-banking arm, HDB Financial Services, is expected to begin its initial public offering (IPO) in the coming months, according to Chief Financial Officer Srinivasan Vaidyanathan. The listing requirement for the IPO is set for September 2025. As of December 31, 2023, HDFC Bank holds a 94.7 percent stake in HDB Financial Services. HDB Fin Services reported a profit of Rs 640 crore in the October-December quarter of the financial year 2023–24, compared to Rs 500 crore in the previous year. The total loan book size of HDB Financial Services stood at Rs 84,000 crore, a significant increase from Rs 65,100 crore in the corresponding quarter last year.

Foreign institutional investors (FII) increased their holdings from 52.13% to 52.31% in the December 2023 quarter, while mutual funds decreased their holdings from 19.71% to 19.45% in the December quarter.

At the time of reporting, the bank stock was trading more than 7% lower at Rs. 1558, eroding more than Rs. 1 lakh crore of investor wealth.

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