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HDFC Bank announced its Q3 (October-December 2024) financial results, revealing a modest 2.3% year-on-year increase in consolidated net profit, reaching Rs 17,657 crore. This growth, however, was tempered by a slowdown in loan growth, a strategic decision by the bank to prioritize balance sheet strengthening. The standalone net profit reached Rs 16,735.50 crore, a slight increase from the previous year but marginally lower than the preceding quarter. This strategic shift reflects a broader approach to long-term stability and controlled growth, rather than a focus on immediate, potentially unsustainable expansion. The bank's total income on a standalone basis showed a positive trend, rising to Rs 87,460 crore compared to Rs 81,720 crore in the same period of the previous year. This increase underscores the bank’s continuing strong revenue streams across its multiple operations. A key component of this growth is the core net interest income which saw a 7.7% increase, reaching Rs 30,650 crore. This growth, despite a stable net interest margin (NIM) of 3.43%, indicates effective management of interest rates and a robust loan portfolio. The non-interest income also performed well with a 2.8% increase, totaling Rs 11,450 crore, largely driven by growth in core fees and commissions. The stable NIM, a point of investor concern following the merger with HDFC, has been addressed through a proactive approach to loan growth management. The CFO, Srinivasan Vaidyanathan, emphasized the deliberate slowing of loan growth, viewing it as a necessary step to enhance the balance sheet's strength by reducing the credit-deposit ratio. This reduction is expected to facilitate more rapid growth when macroeconomic conditions improve.
The bank's strategic decision to slow loan growth is not merely reactive; it's part of a long-term plan. The CFO projected that it will take another two years to lower the credit-deposit ratio to below 90%, a timeline that's been expedited due to adjustments in credit growth. This underscores the bank's commitment to a more sustainable and responsible lending strategy. The bank's lending targets reflect this conservative strategy: the bank aims to maintain credit book growth below the system average in FY25, achieve parity in FY26, and surpass system growth by FY27. This calculated approach stands in contrast to the aggressive lending strategies of some state-run lenders, particularly in the home loan sector. This competitive environment has limited HDFC Bank's home loan growth to 9.7% year-on-year. The bank's pricing strategy, which is slightly higher than that of public sector banks (8.4% versus 8.15%), reflects a prioritization of profit margin over volume. The bank is focusing on building lasting customer relationships that extend beyond just loan products, encouraging customers to use their savings accounts, creating a more holistic and mutually beneficial banking relationship.
The deposit side of the business showcases a robust growth rate of 15%, indicating strong customer confidence. The bank intends to continue pursuing this rapid deposit growth. Asset quality remains a key focus area. While fresh slippages remained stable at around Rs 6,400 crore, the gross non-performing assets (GNPA) ratio rose to 1.42%, primarily due to seasonal pressures from agricultural loan exposures. Adjusting for these seasonal factors, the GNPA ratio stands at a more stable 1.19%. Significantly, the bank experienced no difficulties with unsecured advances, such as credit cards, personal loans, and microloans. The CFO attributed this stability to a combination of financial education initiatives (a dedicated team of 10,000 people), the women-centric focus of microloans, and the prior decision to slow growth in this sector. Growth in unsecured assets has indeed declined from 19% in FY23 to around 9.5% in the first nine months of FY25. The bank’s commitment to retail assets is evident, with retail assets now comprising 58% of the loan book. The substantial loan securitization efforts also contribute to the bank's strategy. In the first nine months of FY25, approximately Rs 45,000 crore of portfolio has been sold, including Rs 20,000 crore in Q3 alone. This will continue to be a key component of the bank’s risk management strategy. Capital adequacy remains strong, exceeding 20% as of December, with core buffers above 17%. The bank is also awaiting Sebi's review of the IPO application for its subsidiary, HDB Financial Services, targeting a listing by September this year. The subsidiary, along with HDFC Life Insurance, the asset management arm, and securities, contributed significantly to the overall financial performance.
In conclusion, HDFC Bank’s Q3 results reflect a strategic shift towards controlled growth and balance sheet strengthening. While the profit growth is modest, the bank's proactive management of loan growth, focus on asset quality, and commitment to retail assets signal a longer-term vision of sustainable and profitable growth. The bank's actions demonstrate a commitment to navigating the current macroeconomic uncertainties while maintaining a strong financial position. The strong capital adequacy and successful loan securitization further solidify the bank’s robust financial health and its capacity to weather future challenges. The upcoming IPO of HDB Financial Services also promises to unlock further value for the bank and its investors. While the slower loan growth might be viewed as conservative by some, it represents a calculated strategy aimed at achieving stronger, more sustainable long-term growth for HDFC Bank. The bank's approach prioritizes building lasting customer relationships, enhancing its risk profile, and ensuring long-term stability—a strategy that seems well-suited to navigate the complexities of the current business climate.