HDFC Bank's share price plunges over 4% after weak Q1FY25 numbers

HDFC Bank shares plunged 4.55 per cent on Friday to close at Rs 1,648.10 on the BSE, after the bank reported a sequential decline in both advances and deposits for the quarter ending June 2024 (Q1FY25). The sharp drop follows a period of sustained rise in the bank’s share price on the hopes of an increase in weightage in the MSCI Emerging Market Index.

The bank’s advances fell 0.8 per cent to Rs 24.87 trillion in Q1FY25 and deposits dropped 0.03 per cent to Rs 23.79 trillion during the same period, according to the lender’s exchange filing on July 4.

However, on a year-on-year (Y-o-Y) basis, the bank’s advances were up 14.9 per cent, excluding the impact of the merger of erstwhile housing financier HDFC with HDFC Bank, which came into effect on July 1, 2023. The moderation in loan growth was primarily due to contraction in the wholesale segment and subdued growth in retail segment.

“HDFC Bank is focused on repaying HDFC's liabilities, which is why loan growth took a backseat,” broking firm CLSA said in a note.

Deposits grew 16.5 per cent during the same period, excluding the impact of the merger. Further, the current and savings accounts (CASA) ratio as a proportion of total deposits was down at 36.3 per cent in Q1FY25 compared to 38.2 per cent in Q4FY24.

Both loan and deposit growths are generally seasonally soft in Q1 for HDFC Bank (1-3% quarter-on-quarter growth seen in loans and deposits in the last three years in Q1), but the reported numbers are a tad lower than usual, said Nomura in a report, adding that the credit-deposit ratio was also flat at 105 per cent.

Meanwhile, for the first time, the bank disclosed growth in average balance of deposits as well as assets under management (AUM).

Sequentially, average deposits grew 4.6 per cent while average AUM grew 0.8 per cent, primarily because deposits in the last quarter (Q4FY24) saw a sharp build-up towards the end of the quarter, Nomura further said.

“…It’s been a weak quarter in general in terms of deposit accretion so far for the system. Though the average has gone up a good 4.6 per cent quarter-on-quarter, unfortunately the disclosure has been selective. Nevertheless, HDFC Bank always calculates margins based on daily average assets and hence this deposit outcome shouldn’t change that. The focus now shifts towards net interest margin (NIM) improvement,” said Suresh Ganapathy, managing director, head of financial services research, Macquarie Capital.

“They have let gone of corporate loans and retail loans have grown. So, loan mix is favourable and since daily average number is up, NIMs should hold off at 3.44 per cent, which is Q4 levels, and possibly even show modest improvement,” Ganapathy added.

Earlier this week, the bank disclosed that as of June 2024, foreign shareholding was down to 54.83 per cent from 55.54 per cent in March 2024. Analysts have said that with foreign shareholding going below 55 per cent, the threshold set by the global index provider MSCI, HDFC Bank’s weightage in it will double, leading to strong inflows. Following the disclosure, the bank’s share price touched an all-time high but since then it has shed some of its gains.