HDFC Bank Q3 preview: Weak loan growth to weigh on profit, flat margins likely

HDFC Bank

India's largest private lender HDFC Bank is set to clock modest 8 percent year-on-year (YoY) growth in net profit for the third quarter of fiscal year 2024-25 (FY25), weighed down by subdued loan growth and stagnant margins, said analysts. Net interest income (NII) is projected to grow by 1.6 percent YoY in Q3FY25. The bank's results will be announced on January 22, 2024.

According to a Moneycontrol poll of 8 brokerages, HDFC Bank's net profit is estimated at Rs 16,650 crore in Q3FY25 versus Rs 16,372 crore in Q3FY24. NII is pegged at Rs 30,690 crore in Q3FY25 from Rs 28,471 crore in the year-ago period.

Estimates of analysts polled by Moneycontrol are shown to be in a narrow range, meaning any positive or negative surprises may elicit a sharp reaction in the stock price. Among the brokerages polled, YES Securities rolled out the most bullish projections while Citi Research forecasted the slowest growth for HDFC Bank.

What factors are driving the earnings?

Soft loan growth: HDFC Bank recorded a 3 percent YoY loan growth in Q3FY25 as it concentrated on improving its loan-to-deposit ratio (LDR), according to its business update. While deposits grew by a robust 16 percent YoY to Rs 2.5 lakh crore, the slower pace of loan expansion is expected to weigh on overall earnings.

Flat margins: The bank’s net interest margin (NIM) is forecasted to remain flat at 3.6 percent YoY as the management focused on reducing its credit-to-deposit (CD) ratio below 100 percent following its merger with HDFC Ltd. This cautious approach has tempered margin growth despite strong deposit inflows.

Deterioration in asset-quality: Deteriorating asset quality adds another layer of concern. Citi Research projects the gross non-performing asset (GNPA) ratio to increase by 16 basis points (bps) YoY and 6 bps quarter-on-quarter (QoQ) to 1.4 percent in Q3FY25. Net NPA (NNPA) is expected to rise by 12 bps YoY and 2 bps QoQ to 0.4 percent, reflecting post-merger consolidation challenges.

What to look out for in the quarterly show?

Investors will keenly watch out for HDFC Bank's near-term progression of margins, guidance for credit growth, and deposit growth, which could shape market expectations for subsequent quarters.

Shares of HDFC Bank gained 2 percent during the October-December period, outperforming benchmark Nifty 50's 4 percent decline.

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