HDFC Bank announces Q1FY21 Results!

Last updated: 18 Jul, 2020 | 12:48 pm

HDFC Bank announces Q1FY21 Results!

HDFC Bank, India’s largest bank by market capitalization, reported strong growth and net profit, especially considering the current economic environment.

  • The Net profit grew 19.5% YoY to Rs. 6658.6 crore in Q1FY21 compared to Rs. 5568.2 crore in the same period a year ago.
  • Total loans increased a whopping 21% YoY to Rs. 10.03 lakh crore in Q1FY21 compared to Rs. 8.29 lakh crore in the same period a year ago
  • Bank’s Net Interest Income (NII) rose 17.8% YoY to Rs. 15,665 crore (One of the highest in the industry) compared to Rs. 13,294 crore a year ago. A bank’s primary business is to borrow money and lend the same at a rate higher than the rate at which they borrowed. The income generated from this differential is known as net interest income. Modern-day banks have a lot of sources of revenue. However, this is an extremely important number to truly find out as to how much a bank is earning fro its core operations.
  • HDFC Bank increased provisions on account of COVID-19. The bank kept aside Rs. 3891.5 crore in the quarter as provision and contingencies. Gross NPA rose to Rs. 13,773.5 crore (1.36% of total loans) in Q1FY21 compared to Rs. 12,650 crore (1.26% of total loans) in Q4FY20. The total Net NPA stands at 0.33% (one of the lowest in the industry). However, the bank has not disclosed the portion of loans under moratorium. True NPA’s of banks are extremely difficult to calculate currently due to the existing moratorium. Once lifted, the whole banking and finance industry is expected to witness a sharp increase in their NPA’s. Although HDFC bank has increased provisions for such a scenario, analysts believe that the number will rise even further from current levels. 
  • Bank’s Capital Adequacy stands at 18.6% (one of the highest in the industry) compared to 16.9% last year.
  • Deposits of the bank grew 24.6% Yoy to Rs. 11.89 lakh crore compared to Rs. 9.54 lakh crore a  year ago. Bank’s CASA (current and savings account) deposit now comprise 40.1% of total deposits of the bank. CASA capital is the cheapest source of capital for banks. The higher the number the more profit a bank can earn. HDFC charges 0% on its current account and approximately 3.5% - 4% on its savings account. 

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.

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