Well-Capitalised for Future Growth

India’s largest private sector lender, HDFC Bank is one such bank, which has always been in sync with all brokerage analysts. Currently, the bank’s stock, which forms part of around 520 schemes of mutual funds as on  March 31, 2019, also remains a preferred stock in the portfolio for mutual funds companies.  For the quarter ended March 31, 2019, the bank reported a healthy performance following a healthy improvement in the net interest margin (NIM) to 4.4 per cent from 4.3 per cent. Further, the total income, which finally slated at Rs31,2014.5 crore grew by 22.1 per cent, from Rs25,549.7 crore.

The growth in the net interest income (NII) by 22.8 per cent to Rs13,089.5 crore was driven by the average asset growth of 19.8 per cent during the quarter. The net profit for the bank was up by 20.5 per cent for the year ending on  March 31, 2019.  “Considering the healthy balance sheet growth, superior asset quality and  management (overhang of near-term leadership change to stay),  HDFC is well poised to deliver consistently with margin leadership and  robust return ratios. The bank remains a portfolio stock with premium valuations. We revise our estimates to approximate 20 per cent compounded annual growth rate (CAGR) in NII, approximate 24 per cent in profit after tax (PAT) in FY19-21E,” said an  analyst tracking the bank at ICICI Direct.

The overall deposits spurt a growth of 17 per cent Y-o-Y, whereas CASA increased by 14 per cent driven by strong current account growth. The bank’s continuous focus on deposits helped to maintain a healthy liquidity coverage ratio at 118 per cent, which was well above the regulatory requirement. Total advances for  March increased by 24.5 per cent yoy. Explaining the scenario, an  analyst at KR Choksey shares and securities said, that, “The bank is following a strategy of market borrowings to support the growth in advances.

In fact, management indicated of plans to raise up to Rs.50,000 crore, through private placement of debt over the next 12 months in order to address any liquidity concerns. The bank’s total capital adequacy ratio (CAR) was at 17.1 per cent at end Q4 FY2019 as against a regulatory requirement of 11 per cent, indicating that the bank is adequately capitalised.”

Currently, the bank’s Gross non-performing assets (GNPA) of 136 basis points of loans have been steady with strong provisioning coverage ratio (PCR) of 71 per cent. Higher PCR above 70 per cent indicates most asset quality issues have been taken care of.

This means that the bank has posted a strong quarter coupled with a strong growth in lending and deposit mobilisation. In the last two years, the bank’s stock has delivered more than 50 per cent returns.

However, in the recent  board meeting of the bank, the management has plans to split the share in order to boost its  liquidity.  This would make the share prices even more attractive investors.

himali@outlookindia.com