HDFC Bank Q3: Analysts see up to 17% YoY jump in profit; NIM may contract

HDFC Bank is set to report a solid double-digit growth in net profit for the October-December quarter (Q3FY22) on the back of a healthy loan book and robust increase in net interest income, analysts said. It’s net interest margin (NIM), however, may see flattish growth sequentially and mild contraction year-on-year, they said.

“HDFC bank has already reported strong growth in loan book, as part of its initial update. Loan growth improved to 16.4 per cent YoY, from 15.4 per cent YoY last quarter, and deposit growth was 13.8 per cent YoY, from 14.4 per cent YoY last quarter,” said analysts at Morgan Stanley in their result expectation report.

Retail loan growth was 13.5 per cent YoY compared with 13 per cent YoY last quarter (up 4.5 per cent QoQ). Commercial and rural loan growth accelerated to 29.5 per cent YoY relative to 27.5 per cent YoY last quarter (up 6 per cent QoQ). Wholesale loan growth, meanwhile, was 7.5 per cent YoY compared with 6 per cent YoY last quarter (up 4.5 per cent QoQ).

This, the brokerage said, led to current account-savings account (CASA) growth of 24.6 per cent YoY, relative to 28.6 per cent YoY, leading to improvement in CASA ratio to 47.1 per cent from 43 per cent in Q3FY21 and 46.8 per cent in Q2FY22.

“Strong loan growth coupled with continued improvement in CASA share should largely offset potential pressure on loan yields (given falling rates). We therefore expect margins to remain flat QoQ at 4.1 per cent and forecast net interest income (NII) growth of 13 per cent YoY,” they said.

Overall, analysts expect NIMs to be around 4.11-4.20 per cent. In Q3FY21, NIM was 4.2 per cent, and it was 4.10 per cent in Q2FY22.

NII expansion, meanwhile, is expected to be in the range of 11 per cent YoY (2.4 per cent QoQ) to 14 per cent YoY (5.2 per cent QoQ). In absolute terms, this would range between Rs 18,114 crore and Rs 18,606.5 crore.

An outlier figure by Axis Securities pegs NII at Rs 19,287 crore, up 18 per cent YoY and 9 per cent QoQ. NII was Rs 16,317.6 crore in Q3FY21 and Rs 17,684.4 crore in Q2FY22.

The lender is scheduled to report its Q3FY22 earnings on Saturday, January 15.

Operating and net profit

Owing to subdued growth in other non-interest income, the lender’s operating profit may rise, on average, 13 per cent YoY (8.2 per cent quarterly) at Rs 17,100 crore, said analysts.

That said, the most bullish estimate pegs the operating profit at Rs 17,817 crore (up 17.3 per cent YoY/12.7 per cent QoQ) while the most conservative estimate sees it at Rs 16,227 crore (up 6.9 per cent YoY/2.7 per cent QoQ).

Net profit, on the other hand, is seen growing around 17 per cent YoY and 16.4 per cent sequentially, up to Rs 10,284 crore.

Operating profit and net profit were Rs 15,186 crore and Rs 8,758.3 crore last year, and Rs 15,807 crore and Rs 8,834.3 crore in Q2FY22, respectively.

Asset quality trends

Analysts at Motilal Oswal Financial Services said they will remain watchful of the impact on asset quality, particularly on SME, Agri, and the unsecured book. Thus, they expect slippage to stay elevated.

“However, the bank holds additional contingency provisions, which would limit the impact on profitability,” it said.

Global brokerage Nomura pegs slippages at Rs 7,260 crore, compared with Rs 10,732 crore in Q2FY22.

As regards loan-loss provisions, Kotak Securities peg the same at Rs 16,939.7 crore, up 11.5 per cent YoY and 7.2 per cent QoQ, from Rs 15,186 crore and Rs 15,807.3 crore, respectively.

MOFSL, on the other hand, forecast gross NPA ratio at 1.3 per cent (vs 1.4 per cent QoQ) and NNPA ratio at 0.4 per cent (vs 0.5 per cent QoQ).