Last updated: 18 Jul, 2020 | 12:48 pm
HDFC Bank, India’s largest bank by market capitalization, reported strong growth and net profit, especially considering the current economic environment.
The bank is being extra conservative. 'HDFC Bank increased their cash balance with RBI significantly, even though the reverse repo rate is at a decade low of 3.35%. The bank, as of 30th June 2020, has ~Rs. 96,000 crore (6% of total assets) as cash balance with the RBI.' The same was ~Rs. 72,000 crore (4.5% of total assets) till 31st March 2020 and ~Rs. 57,000 crore (4.5% of total assets) till 30th June 2019.
HDFC Bank is India’s largest private lender. They are pioneers and epitome of banking ethics. While total retail advances rose 7.2%, loans in the auto, two-wheeler, commercial vehicles and commercial equipment categories declined. Loans against securities also contracted. Retail loans comprise ~48% of the banks’ total lending book.
The continued slowdown in economic activity has led to a decrease in loan originations, the sale of third party products, the use of credit and debit cards by customers, the efficiency in collection efforts and waiver of certain fees. The continued slowdown may lead to a rise in the number of customer defaults and consequently an increase in provisions.
Even though the current economic environment is extremely stressful for the Banking Industry, we believe HDFC Bank has the necessary firepower to ride out the period and live up to the legacy that it has.
Our VGQM stock analysis model currently has a BUY rating on the stock.