IGI Logo

Well positioned to lead new-age banking

At its analyst day meet, HDFCB management highlighted how the bank is getting future-ready by focusing on strengthening its digital capabilities and sustainable growth after the merger while maintaining RoA at the current level. The bank plans to announce various new initiatives to provide a superior experience to customers. For the bank, technology has moved from being an enabler to being a driver of outcomes. The bank has emphasized that running the bank includes modernizing the existing infrastructure, along with building competencies and CoE. Growth is likely to be broad-based, mainly driven by technology and expanding distribution network, while improved cross-selling will further augment revenue growth. The bank highlighted that the cost-to-income (C/I) ratio may remain sticky for the near term but could decline to 30% over the next 10 years. HDFCB remains one of our preferred picks and we maintain our Buy rating with a TP of INR1,950.

Merger process on track; exciting growth opportunities to unfold

HDFCB suggested that the merger process is on track and is expected to be completed in about five weeks. The bank is positioning itself to capitalize on new growth opportunities in mortgage assets, higher cross-selling as customer stickiness improves, and faster growth in liabilities. Investments in branches and digital infrastructure will further support growth over the long term.

Retail assets: Delivering growth while maintaining high underwriting

Demand remains strong in the secured retail segment, and the bank suggested that there are 400-500m people yet to be tapped by the banking system. While competition has been high, HDFCB has been able to maintain pricing discipline. Unsecured retail has also witnessed new players and aggression in the sector, but a robust customer acquisition run rate (~1m a month) and state-of-the-art digital solutions across a gamut of retail products support strong growth momentum. The bank is looking to extend its digital 10-second personal loan product to new-tobank (NTB) customers as well. Earlier, it introduced express car loans, digital loans against mutual funds (2018), digital loans against shares (2017), auto loans zip drive (2016) and 10 secured personal loans (2015). Its market share in credit cards/PL/vehicle loans/ mortgages remains low at 21%/14%/5%/2%, offering a strong opportunity to grow over the years. The bank highlighted that 66-70% of HDFC Ltd customers do not have a liability account with HDFC Bank.

Corporate segment growing at a healthy pace

HDFC Bank has reported 15% YoY growth in the corporate segment even as it let go of INR1t of growth opportunity in the corporate banking space. Key reasons for foregoing such growth were: 1) rates not favorable, 2) additional covenants, and 3) no cross-sell opportunity. In the large corporate credit base of INR38t, HDFCB has a 10.4% market share at INR4t. The bank had net NPAs of 0.25% in the corporate portfolio, while the credit cost was negative in FY23. PLI, asset monetization and initiatives around green energy will increase capex requirements in the upcoming years, with capex expected to grow to INR750b in FY24 and to peak at INR1.04t in FY25 (total estimate of ~INR4.6t over the next five years).

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer