In Short:
HDFC Bank will prioritize profitability over growth in the medium term due to higher credit to deposit ratio and lower core income. CEO Shashidhar Jagdishan emphasized the importance of sustaining retail deposits. The bank reported a 37% increase in net profit in January-March but saw a marginal growth due to provisions and lower net interest income. It also announced a dividend and plans to raise tier 2 capital.
Focus on Profitability: A Human-Centric Approach by HDFC Bank
Welcome to the world of HDFC Bank, where profitability takes center stage overgrowth in the medium term. The country’s largest private lender is navigating the challenges of a high credit-to-deposit profile and lower core income with a people-first mindset.
Key Insights from CEO Shashidhar Jagdishan
In a recent earnings conference call, CEO Shashidhar Jagdishan emphasized the importance of sustainability in retail deposits for the bank. Investing in distribution, people, and technology is crucial to maintaining this sustainability. Jagdishan’s focus on improving profitability metrics such as return on assets (RoA) and earnings per share reflects the bank’s commitment to long-term goals.
While abstaining from giving guidance this time around, Jagdishan highlighted the significance of customer engagement and service-first culture in driving sustainable momentum for the bank.
Financial Highlights
HDFC Bank reported a 37% year-on-year growth in net profit in January-March, fueled by higher net interest income and a stake sale in its education finance arm, HDFC Credila. Despite a sequential growth of 0.85% in net profit, the bank faced challenges including higher provisions and slower growth in net interest income.
Net interest income reached ₹29,077 crore in the final quarter of 2024, with a 2% quarter-on-quarter growth. The bank also saw a substantial rise in other income, a 63% sequential increase due to a one-time gain from the sale of HDFC Credila.
Asset Quality and Provisions
HDFC Bank maintained stable asset quality, with gross non-performing assets (NPA) ratio at 1.24% at the end of March. The bank’s provisions witnessed a significant three-fold jump, mainly attributed to floating provisions to cover potential losses in the future.
Advanced and Deposits
Advances grew by 1.6% sequentially, surpassing ₹25 trillion by the end of March 2024. Deposits also saw a healthy growth of 7.5%, amounting to ₹23.8 trillion during the same period.
Board Decisions and Analysts’ View
In response to the financial performance, HDFC Bank announced a dividend of ₹19.5 per equity share of ₹1 for the fiscal year ended March 31, 2024. The board also approved raising ₹60,000 crore of tier 2 capital through bond instruments.
Analysts like Rahul Malani from Sharekhan by BNP Paribas acknowledged the bank’s performance but also noted areas for improvement in margins and credit costs. The bank’s strategic approach to balancing profitability and sustainability remains a focal point in the market.
