HDFC Bank reports post-merger Q2FY24 earnings, gains in revenues and profitability

Net interest margins come in lower but analysts expect these to improve in 2-3 quarters

Published: Oct 16, 2023 06:58:20 PM IST

Updated: Oct 16, 2023 07:29:00 PM IST

Private sector lender HDFC Bank reported that its consolidated net revenue grew by 114.8 percent to Rs66,317 Image: Shailesh Andrad / Reuters

Private sector lender HDFC Bank reported that its consolidated net revenue grew by 114.8 percent to Rs66,317 crore for the quarter ended September 30 from Rs30,871 crore a year earlier. This is the first earnings data incorporating the merger of mortgage lending giant HDFC with HDFC Bank and with different accounting practices followed, the data is not comparable to previous quarters. It can however be compared to sequential quarters.

Net profit, on a consolidated basis was Rs16,811 crore, up 51.1 percent, up for the corresponding period a year earlier.

Core net interest margin (NIM) for the quarter was 3.65 percent on total assets and 3.85 percent on interest earning assets. After absorbing debt funded cost for additional liquidity and merger management, the reported NIM for the quarter is 3.4 percent on total assets and 3.6 percent on interest earning assets, the bank said in its latest earnings.

Prior to the merger, NIMs for HDFC Bank had been stable at 4.1 percent for the past four quarters, from September 2022 to June 2023. JM Financial analysts had in a September 19 update said that “incoming NIMs of HDFC could drag down the merged entity’s margins by 25-30 basis points in the near-term and will recover gradually over the next 2-3 quarters.”

Gross non-performing assets for the merged entity were at 1.34 percent of gross advances for the Q2FY24, as against 1.41 percent on a proforma merged basis as on June 30, 2023, and 1.23 percent as on September 30, 2022. Net non-performing assets were at 0.35 percent of net advances as on September 30, 2023.

The non-individual loan book of erstwhile HDFC has been reckoned under wholesale loans. Certain non-individual accounts of eHDFC which have been restructured and are current have been classified as NPA as per extant regulations. These account for 0.2 percent in the total GNPA ratio and 1.0 percent in the wholesale GNPA ratio as of 30th Sep’23, the bank has said in its September ended investor presentation.

Also read: Private capital chasing mid-sized Indian banks

Banking analysts had raised concerns about the increase in the gross NPAs, due to HDFC’s wholesale portfolio which has seen asset quality deterioration as per bank’s earlier updated review.

Total deposits showed a healthy growth of approximately Rs1.1 lakh crore during the quarter post-merger, and were at Rs21.7 lakh crore as of September 30, 2023, an increase of 29.8 percent over September 30, 2022.

HDFC Bank shares have been subdued for several weeks now – down nearly 6 percent for the year and 8 percent in the past six months in 2023 to Rs1,532 at the BSE, on concerns over the impact of the merger. The stock had edged down 0.24 percent on Monday, prior to the earnings announcement.

HDFC Bank had officially announced the merger with HDFC on April 4, 2022. The HDFC board has approved the merger with HDFC Bank, which would include its wholly-owned subsidiaries HDFC Investments Limited and HDFC Holdings Limited with HDFC Bank.

In recent years, the Reserve Bank of India (RBI) has been tightening the regulatory and capital norms for non-banking financial companies (NBFCs), which includes HDFC. This meant that NBFCs could not really function within a lower level of regulation. Being part of a bank probably made more sense at this stage.

Also read: How does IDFC First stack up among India's top 10 most valued banks

The second reality is that HDFC Bank, though an aggressive private lender, has been a weak player in the mortgage lending space. Retail mortgages now form Retail mortgages now form 30 percent of HDFC Bank’s product wise lending book, compared to just 11.4 percent in June 2023.

Cross-selling of home and life insurance products is being highlighted as the key factor for the merger at this stage. In recent years, besides private sector banks such as ICICI Bank and Kotak Mahindra Bank, a range of housing finance companies such as LIC Housing Finance, L&T Housing and IIFL Housing have been aggressive lenders to customers.