HDFC Bank Q3 results: From HDB Financial IPO to distribution network 5 important things to know from management call

HDFC Bank, India’s largest private sector lender, reported a net profit growth of 33% year on year (YoY) to 16,372 crore in the third quarter of FY24. The bank’s net interest income (NII) in Q3FY24 rose 24% YoY to 28,470 crore. The bank recorded loan growth of 4% QoQ while deposits grew 2%. Its Liquidity Cover Ratio (LCR) fell to 109.8% from 120% QoQ due to a drawdown of liquid assets to fund loan growth.

The bank’s loan to deposit ratio (LDR) rose from 108.4% to 110.5% QoQ. The LDR for standalone was 89% in Q3FY24 versus 85% in Q1FY24. HDFC Bank’s asset quality improved and its Chief Financial Officer Srinivasan Vaidyanathan said that the bank has historically seen an improvement in its asset quality.

HDFC Bank’s management, in its post earnings call, stressed on key points, including deposits, margins, distribution network and listing of subsidiary HDB Financial Services. Here are five highlights from the management’s call: HDB Financial Services Listing HDFC Bank’s CFO Srinivasan Vaidyanathan noted that the bank has time till September 2025 to list HDB Financial Services, the non bank finance subsidiary of the private lender.

Vaidyanathan said preparatory work on the IPO will begin shortly. HDFC Bank holds a 94.7% stake in HDB Financial Services Ltd which is a non deposit taking NBFC offering a wide range of loans and asset finance products. For the quarter ended December 31, 2023, HDB Financial Services’ net revenue was at 23.5 billion as against 22.3 billion for the quarter ended December 31, 2022, a growth of 5.0%.

LCR at the lowest, LDR to improve The CFO indicated that the bank will reduce the LDR. From here on, incremental loans will be funded fully by deposits and deposits will grow faster than loans. Moreover, due to drawdown of excess liquidity, the LCR has dipped below 110% but going ahead the bank plans to maintain it at 110 120%.

Management stated that retail unsecured products are extremely profitable and it would like to grow that book. The delinquencies and the NPAs of this book are better than the secured book. It aspires high teens to 20% growth in this book. Going forward, management aspires to increase the share of non mortgage retail loans, as these are margin accretive.

HDFC Bank’s management believes that the deficit in system liquidity is the biggest constraint for the deposit growth. However, it believes that the bank is gaining incremental market share. The bank attributed slower growth in Savings Account (SA) deposits than the Current Accounts (CA) deposits to preference of term deposits over SA deposits and faster increase in customer spends than accretion in customer balances.

Management believes that the CASA ratio would improve once the customer spending reduces in coming quarters. Distribution network HDFC Bank added 146 branches in Q3FY24 taking the total number of branches to 8,091. The bank has another 570 branches in the pipeline and expects to add a maximum of 1,000 branches by end FY24.

Branch addition would be done considering proper mix of URCs and non URCs. Management would focus not only on increasing the number of branches, but also its geographical presence. Asset quality HDFC Bank’s gross non performing assets (GNPA) ratio declined 8 bps to 1.26% in Q3FY24. Of this, 15 bps pertains to standard assets.

As of Q3FY24, slippage ratio stood at 26 bps (non annualised) or 70 billion. Recoveries and upgrades stood at 45 billion with write offs of 31 billion. There was no sale of NPA during the quarter. Total provisions, including contingent and floating provisions stood at 154 billion as of Q3FY24. At 10:15 am, HDFC Bank shares were trading 5.77% lower at 1,582.00 apiece on the .

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