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Business momentum steady; operating performance undergoing swift normalization

Asset quality stable; restructured book in check at 0.6% of loans

* HDFC Bank (HDFCB) reported a healthy quarter, with advances growth driven by both Corporate and continued revival in the Retail segment. Operating performance remained steady, led by robust business growth, stable margins, and controlled opex. However, the bank made additional provisions of INR13b, resulting in a PAT miss.

* Asset quality remained stable, while total restructuring stood at 0.6% of loans. The GNPA ratio improved 6bp QoQ to 1.32% (v/s a proforma GNPA ratio of 1.38%) and NNPA ratio was stable at 0.4%. PCR held steady at ~70%.

* We marginally cut our estimates for FY22/FY23 by 2%/4% and estimate an earnings CAGR of 20% over FY21–23E. Maintain Buy.

Asset quality steady; business momentum gaining traction

* HDFCB reported PAT growth of ~18% YoY to ~INR81.9b, below estimates (MOFSLe: INR86.9b), affected by higher provisions (37% QoQ increase) – as the bank made additional contingent provisions of INR13b. However, PPOP growth was in line with our estimates. For FY21, NII/PPOP/PAT growth came in at 15.5%/17.7%/18.5% YoY.

* NII grew 12.6% YoY, with margins stable QoQ at 4.2%. Fee income growth came in robust at ~20% YoY, led by continued revival in retail asset growth. FX-related fees also remained strong (56% QoQ growth). Treasury gains moderated to INR6.5b (41% QoQ decline), resulting in growth of ~26% YoY in other income. Opex grew 11% YoY (in-line), with the C/I ratio coming in at 37.2% (v/s 39% in FY20). Overall, PPoP growth was robust at 20% YoY (inline).

* Loans were up ~14% YoY, driven by robust growth in corporate loans (+21.7% YoY). On the other hand, the company reported retail loan growth of 6.7% YoY (+4.5% QoQ). Among the retail segments, strong sequential growth trends were seen in Home Loans (5.4% QoQ) and Gold Loans (7.8% QoQ). Also, Auto Loans /Personal Loans grew ~3% QoQ each and the Credit Cards portfolio 2% QoQ, impacted by RBI restrictions on the sourcing of new credit cards.

* Deposits increased ~16% YoY (+5% QoQ), led by CASA growth of 27% YoY (+13% QoQ); TD growth moderated to 8.5% YoY. Overall, the CASA ratio improved to 46.1% (v/s 43.0% in 3QFY21).

* Asset quality came in stable, with the GNPA ratio improving 6bp QoQ to 1.32% (v/s 1.38% proforma), while the NNPA ratio was stable QoQ at 0.4%. Thus, PCR stood at ~70%. The annualized slippage ratio stood at 1.66% (~INR46b) v/s 1.86% in 3QFY21 and 1.2% in 4QFY20. Overall, restructuring under the RBI resolution framework for COVID-19 stood at ~0.6% of advances – largely toward retail assets, on which the bank carries provisions at 10%. The bank has provided ~INR5b toward interest on interest waivers.

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