Your first take on the numbers, the TIN as well as profitability is a bit below soft estimates, but asset quality continues to improve.
Certainly, a very good set of numbers. There is nothing to complain about as such. After the operational performance published in the press release, all eyes were on asset quality. Asset quality is quite stable. There is nothing to complain about there. The number of skids will have to be seen. It could be anywhere between 6,000 to 7,000 crore rupees. But, overall, there is no problem as such. The last two quarters, agricultural lending was a bit of a problem, so we have to wait for management to tell us how agricultural lending really works.
But, given the do that the numbers are broadly in line with what the street expected, don’t you expect a big upgrade or downgrade from the first chunk of numbers we have with us?
Yes, absolutely, the figures were quite expected, but the main driver of the HDFC And HDFC Bank the stock continues to be short-term – merger update and we have to wait for management to let us know what’s going to happen with the regulatory compliance they gave the RBI regarding SLR and CRR. If we hear anything from them, it could move the stock significantly.
In your opinion, can HDFC Bank continue the kind of performance it has been doing, because remember deposit growth has been pretty dazzling this time around, the pace of advances has been pretty strong as well, about 15% to 20%. Do you really think this will be sustainable for HDFC Bank?
In the past, we’ve seen HDFC Bank grow 20%, 15% to 20% on the loan growth side. We are coming out of a phase where HDFC Bank did not develop their retail portfolio for about a year and a half and now they are coming back and developing their retail portfolio properly. So I think 15-20% growth as the credit cycle continues through this year will no longer be a problem.
But the main differentiator of HDFC Bank from other banks is deposit growth of 20%, most banks are struggling to grow, but HDFC Bank continues to grow very well on the side deposits and as we know bank balance sheets are absolutely clean. NPAs are no longer a problem. So overall no problem as such based on the results. Now we are waiting for the RBI to tell us how it will deal with the merger between HDFC and HDFC Bank and will it allow some glide path for CRR and SLR on HDFC Limited’s book.
How do you see the cost of funds likely to move and how net interest margins are likely to move although the RBI has hit a bit of a pause button do you think going forward there will be a little contraction in NIMs or do you expect HDFC Bank to continue above the 4% range?
We have seen an erosion of HDFC Bank’s NIMs. NIMs were trading around 4.4-4.5%. It fell to 3.9% because they weren’t growing their retail book and the wholesale book was growing faster and as we know the wholesale book is underperforming to that of the retail book. So now I also believe from management when I spoke to them that 3.9% to 4% is the broad bottom for NIMs and even though the cost of funds will increase, the loans will be repriced through the MCLR.
So I think the NIMs will be maintained at around 4-4.5%, this is the general level for HDFC Bank. I don’t see it going below that level.
How do you see the stock performing after its fourth quarter results on Monday?
Yes absolutely. Management’s comment on the merger, if there is a comment, then the stock would react positively.
What is your opinion on the valuations at which HDFC Bank is trading and how does it compare to its peers and if you have any pecking order in relation to the banks you prefer at this stage?
What has happened is that HDFC Bank is trading at around 2.5 to 3 times the book price, which is at the lower end of its 10-year median valuation. All major private sector banks have experienced a downgrade in the past year. So my pecking order would be, number one would be HDFC Bank, subject to the merger being near the time horizon, then comes ICICI and Kotak and third will be Axis Bank which is one of the first major banks in the private sector.