About the Company

HDFC Bank Ltd. is an Indian banking and financial services company headquartered in Mumbai, Maharashtra. It has a base of 1,04,154 permanent employees as of 30 June 2019. HDFC Bank is India’s largest private sector lender by assets. It is the largest bank in India by market capitalization as of March 2020.

Q4 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 35918 31204 15.11% 36039 -0.34% 138073 116598 18.42%
PBT 9174 8954 2.46% 9902 -7.35% 36607 32200 13.69%
PAT 6928 5885 17.72% 7416 -6.58% 26257 21078 24.57%


Consolidated Financials (In Crs)
  Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 38287 33260 15.11% 38326 -0.10% 147068 124108 18.50%
PBT 9682 9583 1.03% 10249 -5.53% 38195 34318 11.30%
PAT 7297 6311 15.62% 7660 -4.74% 27296 22446 21.61%


Detailed Results

    1. The net standalone revenues rose 18.2% YoY in Q4.
    2. Pre-provision operating profit rose 19.5% YoY.
    3. The net interest margin was 4.3%.
    4. Other income formed 28.4% of net revenues.
    5. The breakup of other income is:
      1. Fees & Commissions: Rs 4201 Cr vs 3665 Cr last year.
      2. FX & Derivatives: Rs 501 Cr vs 403 Cr last year.
      3. Gain on sale/revaluation: Rs 565 Cr vs Rs 229 Cr last year.
      4. Miscellaneous Income: Rs 766 Cr vs Rs 574 Cr last year.
    6. The impact of COVID-19 on other income is Rs 450 Cr.
    7. Operating expenses rose 16.3% YoY.
    8. PAT rose 18% YoY.
    9. Total Balance Sheet size rose 23% YoY. Total Deposits rose 24.3% YoY while CASA deposits rose 23.9% YoY.
    10. Total advances rose 21.3% YoY with domestic advances rose 21.4% YoY. Retail advances grew 14.8% YoY while wholesale advances grew 28.2% YoY.
    11. The bank maintained a CAR of 18.5%.
    12. GNPAs was at 1.26% (1.1% excluding agricultural NPAs) on 31st March 2020.
    13. The bank maintained floating provisions of Rs 1451 Cr and contingent provisions of Rs 2996 Cr. Total provisions were at 142% of GNPAs.
    14. In HDB, consolidated net profit rose 15.5% YoY while advances grew 20.1% YoY.

Investor Conference Call Highlights

  1. The bank has taken all adequate measures to ensure the safety of employees and customers across all of the bank’s locations.
  2. The management is confident that the bank is well-positioned to expand its market share.
  3. The management has also mentioned that the rate of rejection has risen as a consequence of stricter requirements and the loan approval process.
  4. The company added 315 branches in FY20 with 71 added in Q4. Around 250 branches are in various stages of readiness to open in a short time.
  5. The cost-to-income has remained stable at 39%.
  6. The total credit cost in Q4 was at 151 bps with COVID-19 impact of 62 bps.
  7. The bank got a reaffirmed standalone credit rating of BBB+ from S&P and is the only bank in the country with this rating which is even above the BBB- for India.
  8. Retail lending is expected to stay subdued for the next few quarters.
  9. The main growth for the bank came from lending to liquidity rich companies (MNCs & PSUs) and epidemic resistant sectors like power.
  10. 6% of all funds disbursed to corporates in Q was used for working capital requirements.
  11. The management ensures that the bank did not relax its high-risk assessment criteria during its growth at all.
  12. The bank gained over 1500 SME clients in Q4.
  13. About 85% of disbursement in Q4 had collateral in excess of 100% and 65% of the total book was allocated to priority sector lending areas.
  14. The management believes that the bank should stay stable due to flight to safety in times of economic distress and more high-quality borrowers would approach the bank for stable funding.
  15. The management stresses that the retail unsecured lending for the bank has been robust with lower than industry average delinquency. This is mainly due to the extensive risk assessment done by the bank and the extensive internal credit rating done by the bank.
  16. The SME loan book is 77% collateralized using real estate properties owned by the promoters of the borrowing SMEs.
  17. The bank conducted stress tests of 3 scenarios namely- normal, strong, and extreme stress. In the strong stress case, the bank found that 9% of the portfolio will be impacted and may not be able to fulfill payment obligations. This case is without taking into account any concessions provided by the bank as mandated by regulatory bodies like the RBI moratorium.
  18. The bank has not received many applications for the loan moratorium and the management stresses that it is still too early to assume anything in this area.
  19. The management has stated that they arrived at the current level of contingent provisions by assuming collection efficiency to be 0 in April, less than normal in May, and near normal in June.
  20. In retail accounts, around 95-98% of moratorium applicants were not in the default state, and according to the bank survey, the customers had mostly applied to it out of caution. The bank has not specified any cut-off date for the moratorium application.
  21. The management has stated that because of the rising financial stress in the past year in the economy, the bank has been continually refining all of its credit policies and filtering mechanisms for all kinds of products and thus the bank stands in a much better position to deal with the current financial uncertainty as compared to a year ago.
  22. The management has clarified that according to the strong stress test case, the rise in NPAs would not be 9% rather it would be 0.5% incrementally only.
  23. The AUM growth in HDB was modest at 6%.
  24. The cost of deposits has come down 15-20 bps in Q4.
  25. Over 80%% of the unsecured book is loaned out to salaried professionals where around 80% work at MNCs and big AAA-rated corporates.
  26. The company is also focussing on digitizing as many processes as it can and due to the COVID-19 scenario, the company’s plans to do so have been on overdrive.
  27. The management expects the cost-to-income to decline going forward. It also expects the impact of COVID-19 on revenues should be there for the next 2 quarters.
  28. The management has not seen any significant change in farm NPA levels in Q4.
  29. HDB provided an opt-out facility for the moratorium as opposed to the opt-in facility that the HDFC bank had done.
  30. The management believes that as long as the mix of wholesale to retail is maintained at near about 50-50, the ALM should be maintained at current levels.
  31. The bank has an MFI exposure of Rs 8500 Cr. It has already done a 25 bps cut in savings rate on 15th April and thus is not expected to do another cut anytime soon.
  32. The investment book rose from Rs 3.1 trillion to Rs 4 trillion. This was mainly due to the big increase in new deposits and the not so high increase in lending which resulted in excess cash which was invested according to the management.
  33. The management is still assessing potential partners for participation in LTRO 2.0.

Analyst’s View

HDFC Bank is the biggest bank in the country by market capitalization. It has deservedly earned its stellar reputation over the years. The bank has performed very well in the last quarter of FY20 with more than 21% growth in Balance Sheet and advances. It is a testament to the bank’s brand image that deposit growth has outpaced advances growth considering the size and reach of the bank.

The management has assured that the bank has adapted to the new normal due to the COVID-19 disruption and that its balance sheet and customer set are resilient enough to weather the uncertainty ahead. It remains to be seen how the whole COVID-19 scenario pans out and how it changes the world and especially the banking industry going forward. Nonetheless, given the bank’s resilient customer set, strong liquidity profile, and enduring brand image, HDFC Bank remains an indispensable banking stock for every investor, more so because of the recent correction in valuation.



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