• Deposit Growth: Approximately 15% year-on-year growth.
• Retail Branch Contribution to Deposits: 84% of total deposits.
• Advances Under Management Growth: 10.2% year-on-year growth.
• Net Interest Margin (NIM): Stable at 3.46%.
• Gross NPA: Stable at 1.4%.
• Gross Slippages: 1.2%, improved from the previous year.
• Profit After Tax: INR 16,800 crores, with an adjusted growth rate of 17%.

• Warning! GuruFocus has detected 4 Warning Signs with HDB.

Release Date: October 19, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• HDFC Bank Ltd (NYSE:HDB) reported a healthy deposit growth of around 15% year on year, with retail branches contributing 84% of total deposits.
• The bank's gross NPA remained stable at about 1.4%, with gross slippages improving to 1.2% compared to the previous year.
• Profit after tax grew by an adjusted rate of 17%, reflecting strong financial performance after accounting for bond gains and tax adjustments.
• The bank's fee income grew by 17% year on year, driven by strong growth in third-party and distribution products.
• HDFC Bank Ltd (NYSE:HDB) is strategically positioning itself to capture future growth opportunities by accelerating the reduction of its loan-to-deposit ratio.

Negative Points

• Deposit rates remain elevated and sticky, posing a challenge in the current competitive environment.
• The bank's credit growth is expected to be slower than the system in FY25, potentially impacting its market position.
• There is uncertainty regarding the impact of RBI's draft circular on lending overlaps with group entities, which could affect HDB Financial's listing plans.
• The liquidity coverage ratio has increased to 128%, which may temporarily depress margins due to higher high-quality liquid assets.
• The bank faces challenges in pricing larger ticket-sized loans due to stubbornly low credit spreads, affecting its loan growth strategy.

Q & A Highlights

Q: Can you explain the strong fee growth and the impact of securitization on fees? Also, what about the movement of contingent provisions? A: Fees grew by 17% year on year, driven by strong growth in third-party and distribution products. Securitization does not impact fees as the excess spread is amortized over the life of the loan. Regarding contingent provisions, there was a release due to regulatory clarifications on AIF provisions, which allowed for a reduction in the required reserve.

Q: How will the RBI's draft circular on lending with group entities impact HDB Financial, and will it affect its listing plans? A: The draft circular is still under review, with comments due by November 20. HDB Financial operates under RBI regulations and follows similar policies to the bank, ensuring no arbitrage. The IPO process for HDB Financial has begun, with a listing required by September 2025, but specifics cannot be discussed due to publicity guidelines.

Q: What is the strategy for the loan-to-deposit ratio (LDR), and how aggressive will you be in reducing it? A: The LDR was previously at 86-87% before the merger and rose to 110%. The goal is to bring it back to the mid-80s within two to three years, faster than initially planned. This involves calibrating loan growth, particularly in larger ticket sizes, while maintaining a strong deposit franchise.

Q: How does HDFC Bank plan to manage its liquidity coverage ratio (LCR) amid draft regulations and deposit growth? A: The LCR is currently at 128%, driven by strong deposit growth and calibrated loan growth. The bank aims to maintain an LCR between 110-120% but will adjust based on market conditions and regulatory developments. The focus remains on growing the deposit franchise and managing loan growth prudently.

Q: What are the current thoughts on credit quality, especially in unsecured and microfinance segments? A: The bank is in a comfortable position regarding credit quality, with stable asset performance. While macroeconomic risks exist, there are no immediate concerns. The bank is prepared to capture growth opportunities when the credit cycle turns positive, maintaining a cautious approach to underwriting.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.