HDFC Bank could see credit growth but its margins will remain under pressure in the first quarter


  • HDFC Bank is expected to outperform its counterpart in the first quarter results to be released on July 18, although most banking results are expected to remain silent due to the impact of the coronavirus.
  • In the opinion of the Reserve Bank of Moratorium on loan repayment, asset quality could suffer.
  • Margins are expected to remain under pressure due to increased liquidity on balance sheets and lower repo rates.

HDFC Bank is expected to do better than its counterpart as it prepares to release its first quarter results on July 18.

Analysts expect that while banks will bear the impact of the coronavirus pandemic, large private banks – like HDFC Bank and Axis Bank – could report relatively better credit growth than others.

“With a single-digit moratorium indication and strong credit growth of 21% year-on-year, the bank remains one of the best models,” ICICI Securities said in its overview.

HDFC Credit Growth Over the Last Five QuartersCorporate Deposits / BI India

The sale by HDFC Bank of the stake in HDFC Life and the dividend from the increase in its share price will help increase the bank’s income. “Banks with a relatively lower moratorium, a higher contingency allowance and a secure retail portfolio, notably HDFC Bank and Axis Bank, have a stable performance,” added ICICI Securities.

HDFC Bank could see credit growth but its margins will remain under pressure in the first quarter
HDFC Bank stock price in the last three monthsESB / BI India

HDFC Bank asset quality
The quality of HDFC Bank’s assets may be affected, with ICICI Securities estimating that it will be affected by at least 10 basis points (bps) – 100 bps equals 1%. Gross non-performing assets

HDFC Bank could see credit growth but its margins will remain under pressure in the first quarter
HDFC Bank’s gross and net non-performing assets in the last five quartersCorporate Deposits / BI India

Banks should increase their provisions for bad debts in order to maintain strong balance sheets. The metric to watch will be collection efficiency trends to see if the proportion of loans under moratorium begins to gradually decline to assess the health of the bank, says Motilal Oswal.

The Yes Bank crisis has been a blessing in disguise for the HDFC bank with deposits rising and estimated to have grown 25% year on year in the first quarter of fiscal 20. “NII growth is 18% on a year-over-year basis. annual [year-on-year]Said the preview of ICICI Securities.

Analysts believe lending growth in retail is likely to be moderate due to the impact of the coronavirus which has led to excessive discretionary consumer spending and moderate wholesale lending trends.

Rate cuts push margins

“The trajectory of the margin is likely to decline, affected by the sharp decline in the repo / MCLR rate in banks,” Motilal Oswal said. Last week, HDFC Bank reduced its marginal fund lending rate cost (MCLR rate) by 20 basis points across all tenors. Previously, it listed the lowest interest rate a bank can charge its lenders to encourage more people to take out loans by making them cheaper. MCLR applies to all kinds of loans – education, housing, personal, easy loans, and quick loans, among others.

Tenor New MCLR (%) Former MCLR (%)
Overnight 7.1 7.3
1 month 7.15 7.35
3 months 7.2 7.4
6 months 7.3 7.5
1 year 7.45 7.65
2 years 7.55 7.75
3 years 7.65 7.85


However, the bank’s margin is expected to remain under pressure due to the MCLR cuts and increased liquidity on the balance sheet.

“Additionally, falling interest rates and rising liquidity on balance sheets are expected to keep margins under pressure,” its report said with an estimate of around 10 to 20 basis points for private banks like HDFC Bank. .

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