Nifty may see short-term bullish move shows technical pattern, says HDFC Securities’ Nagaraj Shetti

But first the good news for the overall bond market: Post merger, other non-banking financial companies who found it a tad more difficult to tap the corporate bond market would have had some reason to rejoice.

Prior to the merger on July 1, 2023, HDFC held the tag of being the country’s largest bond seller, with issuances comprising nearly 8% of the total issuance volume. With its exit, the total number of issuances have come down and the lower demand has helped keep yields under check, said experts.

For the bank itself, there are teething problems. While it has received a massive mortgage loan push, the credit-to-deposit ratio (LDR) has remained above the 100% mark.

Speaking to FE recently, HDFC Bank chairman Atanu Chakraborty had said that it (the high CD ratio) was bound to occur because a very large balance sheet of an NBFC (HDFC) was merged into the bank. Come from Sports betting site VPbet

“Naturally, the deposits as a total percentage of liabilities of the bank become slightly smaller when such a merger takes place. However, there would be a profile CD ratio improvement… it is temporarily skewed, but is not a systemic issue,” he added.

The bank’s deposits rose 7.5% quarter-on-quarter (q-o-q) to nearly `24 trillion. The share of low-cost current account savings account (CASA) deposits stood at 38% as on March 31, down from 44% pre-merger.

On the other hand, gross advances rose a mere 2% q-o-q to `25.1 trillion as on March 31 due to a slowdown in low-yielding wholesale advances. While the net interest margin improved marginally in the March quarter, it remains lower than peers at 3.4%.

While the bank refrained from providing any specific guidance for the current financial year, it is consistently focussing on gaining market share in deposits. Currently, the bank’s deposit market share stands at over 11%.

“Deposits are a key number. If the bank is not able to grow the deposit in the way in which they are anticipating, they will have to reduce the loan growth as well,” said Kaitav Shah, lead BFSI Analyst, Anand Rathi Institutional Equities, adding that if the bank opts to hike the fixed deposit rate further, then the margins may come under pressure.

At the same time, the loan portfolio has shifted towards higher-yielding segments like retail, commercial and rural banking loans.

With HDFC bond maturities approaching that are more expensive, the bank plans to utilise deposits to meet repayment obligations. It intends to garner 15-20% incremental share in deposits without being aggressive on rates.
In such a scenario, some analysts feel that a potential slowdown in the mobilisation of retail deposits may hamper the bank’s margin trajectory and return ratios.

On a similar note, BNP Paribas Exane Research feels that if the CASA growth in the system remains “anaemic”, there will be a delay in HDFC Bank achieving the return on assets and return on equity levels necessary for a full valuation re-rating.
Investor skepticism around the bank’s prospects is evident in the fact that the stock has fallen by around 2% since July, 2023.
However, the bank has utilised gains from HDFC Credila’s stake sale and tax reversal due to favorable court order to shore-up contingent provision buffer. This will help strengthen the bank’s balance-sheet going ahead.

“A key monitorable for HDFC Bank will be on how quickly they bring stability to the earning growth. However, one cannot compare pre-merger metrics to post-merger ones,” said Sanjeev Hota, Vice President- Head of Research, Sharekhan.
In the coming years, a gradual retirement of high-cost borrowings, as well as an improvement in operating leverage, will boost return ratios, say analysts. However, investors may have to wait for a longer time to see the elephant to dance again.