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NII growth strong, supported by interest on income tax refund

Price Analysis:

HDFC Bank reported stable operating performance in 3QFY23. In 3QFY23, the provisioning expenses were lower sequentially at ?28bn (v/s ?32.4bn 2QFY23). At the same time NII growth was strong (24.6% YoY, 9.4% QoQ) against the loan growth (19.5% YoY, 1.8% QoQ). Furthermore, the contingent stands adequate. The bank reported stable NIMs at 4.3%., the bank has reported sequential increase in PAT by 15.6% and ROA/ROE of 2.2%/18.3%. The reported GNPA is below the historical trend of 1.4% .We believe, superior underwriting practices, higher liquidity, adequate coverage and strong capital position makes the bank well placed and we recommend BUY with price target of ?1869

Gazing the core:

NII growth back on track: The bank’s NII stood at ?230bn; grew by 24.6% YoY and 9.4% sequentially driven by re-pricing benefits. The bank’s reported NIMs stood at 4.3%. The bank’s loan book mix carries 45% fixed rate loans and 55% floating rate loans. Around 30% of total book is linked to Repo and ~14% linked to T-bills. The bank reported treasury gain of ?2.6bn. moreover, the fee income grew by 4.3% sequentially. Other income (excluding trading and MTM losses) were up by 15.4% YoY. :* PPOP grew by 13.4% YoY and 9.4% QoQ to ?190bn owing to strong NII growth and stable opex (C/I ratio: 39.6%). The bank’s Provisioning Expense stood sequentially lower at ?28.1bn v/s ?32.4bn in 2QFY23. Core credit cost at 74bps v/s 87bps in the previous quarter. The bank has reported a PAT of ?122.6bn; up 18.5% YoY and 15.6% sequentially. ROA/ROE stood strong at 2.24% and 18.33% respectively.

Credit quality intact driven by higher upgrades: The GNPA/NNPA/PCR stood at 1.23%/0.33%/73% v/s 1.23%/0.33%/71% in the previous quarter. The slippages up sequentially and stood at ~?66bn (2% annualized) for the quarter v/s ~?57bn in the previous quarter. The historical slippages ratio range is 1.5% - 2%. The upgrades and recoveries were ?31bn better than previous quarter. The absolute GNPA (?187bn) grew by 2.5% sequentially. The restructuring under RBI resolution framework for covid-19 was approximately ?64bn (42bps) of net advances against ?78.5bn (53bps) sequentially.

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