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Systematix Research Report

HDFC Bank: Stable quarter on margins and asset quality (Buy)

Guidance: Accelerated approach to align credit-deposit ratio, via portfolio sales, to pre-merger levels of 86- 89% (100.8% as of September 2024) in two-three years time frame versus four-five yearrs timeframe earlier. FY25 credit growth slower than system, FY26 in-line with system and FY27 higher than system. Stable margins near term. Fee income growth 14-17%.

What we like: HDFC Bank Ltd.’s management guided for an accelerated push for C-D ratio alignment to pre-merger levels of 86-89% (vs 101% as of Sep’24) in two-three years versus four-five years timeframe earlier.

As a result, while FY25 credit growth will be slower than system, growth will return to system levels in FY26. Within retail, unsecured credit (PL + credit cards) growth remained strong sequentially at 3.5% QoQ, 11% Yoy as opposed to a trend of moderation for peers.

Asset quality in unsecured credit remains intact vs key peers witnessing a deterioration as the bank had calibrated its filters much early on in the cycle. On a period end basis, deposits at Rs 25 trillion saw strong growth of 5.1% QoQ, 15% YoY, an accretion of Rs 1.2 trillion, vs a decline of Rs -7.8 billion in previous quarter which was mainly attributed to seasonal outflow of CA deposits by the bank. Term deposit growth was also strong at 6.7% QoQ, 19.3% Yoy.

On reported basis, NIM % IEA at 3.65% (-1bp QoQ) and net interest margin % assets at 3.46% (-1bp QoQ) remained largely stable QoQ supported by-

  1. asset sales of lower yielding portfolios;

  2. lower corporate mix (- 100bps QoQ);

  3. partly offset by the drag from excess liquidity on the balance sheet due to the asset sales.

Going forward, margins will remain stable supported by improving retail mix and substitution of eHDFCL’s borrowings on maturity by customer deposits.

What we don’t like: Net interest income growth (1% QoQ, 10% YoY) was subdued mainly due to lower loan growth.

SBI: Earnings trend above estimates on lower opex, asset quality broadly stable. (Buy)

Guidance: FY25 loan growth 14-16%. Deposit growth 10% (revised from 8% earlier). Global NIM between 3.2-3.4% (H1: 3.31%). Wage bill to decline to Rs 650 billion-700 billion (FY24: 712 billion, H1: 302 billion).

What we like: For FY25, SBI Bank continued to guide for 14-16% loan growth with-

  1. unsecured xpress credit growth to be stronger in H2 versus H1 due to strong festive demand and process improvements;

  2. double digit growth in corporate credit (H1: 18% YoY, 2% ytd) with strong project pipeline which has increased to Rs 6 trillion versus usual trend of Rs 4-4.5 trillion and higher utilization of working capital limits. With H2 being seasonally strong and ytd trends (4% ytd deposit growth) remaining reasonable, FY25 deposit growth guidance increased to ~10% from 8% earlier.

Bank maintained FY25 guidance stable NIMs around current levels of 3.31% (+/-10bps) as –

  1. deposit costs have peaked;

  2. impact of likely policy rate cuts by H2 end, to be offset by pass-through of MCLR hikes viz. 30bps 1 year MCLR hike in H1. Q2 hikes to be effective from Dec’24;

  3. improved credit yields from better pricing negotiations in corporate credit and higher SME growth led by digitization initiatives.

H1 run-rate of Rs 302 billion is trending lower than FY25 employee cost guidance of Rs 650-700 billion (2-10% YoY decline) due to write-back of actuarial provisions on pension liability from MTM gains. H1 FY25 credit costs of 43 bps (Q2: 38 bp) was within FY25 guidance of 50 bps. Q3 credit costs to be less than 40 bps. Q3 slippage ratio to be <60bps (Q2/H1: 51 bp/68 bp).

What we don’t like:

Domestic advances growth was muted at 3.2% ytd due to weak growth in large corporate (2% ytd) and retail credit 3% ytd due to weakness in auto loans (1% ytd) and unsecured xpress credit (-2% ytd).

On H1 FY25 basis, reported domestic NIM declined to 3.31% (- 12bps ytd) due to deposit cost increase of +22bps ytd and yield on advances decline of -4bps ytd which was partly offset by higher investment yields (+21bps ytd).

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