HDFC Bank falls 8.2% in biggest drop since Covid; Bank Nifty loses over 4%

HDFC Bank results

HDFC Bank's deposit growth lags advances, with a modest 1.9 percent increase in Q3 FY24. Management avoids volatile wholesale deposits. In the same quarter, deposits rose by Rs 41,114 crore, compared to advances growth of Rs 1.14 lakh crore. The slowdown is attributed to a 3.4 percent dip in wholesale deposits, while retail deposits stayed robust at around 2.9 percent, constituting 84 percent of total deposits as of December.

Its Q3 FY24 NIM (net interest margin) stood at 3.4 percent, unchanged from Q2 FY24 but significantly lower than the pre-merger 4.1 percent. Despite stable margins, the LCR (liquidity coverage ratio) fell from 121 percent in September to 110 percent by December, indicating the bank utilised excess cash and investments to fund loan growth due to sluggish deposit growth.

"Deposit momentum is much needed but the surge in high-ticket deposits may keep margins under pressure. Thus, managing deposits and margins is the key task for HDFC Bank in the coming quarters. We also believe that the bank may accelerate growth in better-yield unsecured loans to compensate for margins. We will keep a close eye on the margin profile of the bank," said an InCread Equities report.

Axis Securities noted that HDFC Bank plans to avoid using deposit pricing as a differentiator for growing its liability franchise. To align with the RBI's suggested LDR (loan to deposit ratio) of 75 percent, HDFC Bank aims to sustain a deposit growth rate 300-400 bps higher than credit growth. This strategy aims to restore its LDR to pre-merger levels of 85-87 percent (excluding merger impact, LDR is 89 percent). HDFC Bank sees robust opportunities in both the mortgage and retail non-mortgage segments on the asset side. Given the bank's goal of doubling its book every 4-5 years, maintaining consistently strong deposit accretion is crucial.

"We believe deposit mobilisation will remain an uphill task given tight liquidity and stiff competition. While margin pressures will persist, improvement in NIMs will be largely driven by shifting portfolio mix towards retail lending. Gradually improving cost ratios and benign credit cost given the unabated focus on credit quality will support RoAs (return on assets) as margins face headwinds. NIM recovery remains a key re-rating trigger for HDFC Bank," Axis Securities said in its latest note.

F&O blues

Call writers dominated, as per options data, showing a significant short position at 47400, 47,800, and 48,000 levels. JM Financial's Soni Patnaik highlighted a mixed bag of positions, with aggressive open interest additions in Bank Nifty 47500 CE. The index broke crucial support at 46800, and Patnaik suggested observing if it can recover above 47500. Failure to do so might lead Bank Nifty down to 46000, with today's low of 46500 expected to act as support going forward.

"The banking index's gap-down opening has weakened the positive bias seen since the beginning of the year. Maintaining firm support at 46282, its 50-SMA, is crucial for sentiment recovery. To establish a robust trend, the index needs to confidently surpass the 48000 level. Conversely, a break below the 50-SMA may signal a bearish bias, potentially leading to levels of 45000," said Avdhut Bagkar, Derivatives & Technical Analyst at StoxBox.

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