As expected, HDFC Bank has posted a healthy set of numbers in the fourth quarter (January-March). The bank has managed an impressive 24.3 percent jump in its deposits and a 21.3 percent increase in advances on a year-on-year basis.
More importantly, there is improvement in the asset quality both sequentially and on a y-o-y basis. Gross non-performing assets (GNPAs) declined to 1.26 percent of gross advances as on March 31, 2020, (1.1 percent excluding NPAs in the agricultural segment) as against 1.42 percent as on December 31, 2019 and 1.36 percent as on March 31, 2019.
Net non-performing assets stood at 0.36 percent as on March 31, 2020. The improvement in asset quality is significant since, in the third quarter, the bank had shown a slight rise in GNPA to 1.42 percent.
A closer look at the retail loan book shows muted activity in the Jan-March quarter. The two-wheeler loan book has shown a decline to Rs 9,855 crore as of end-March from Rs 10,149 crore in the December quarter.
Auto loan book has largely remained flat sequentially. With most retail loan segments showing slow growth, overall retail portfolio has grown by around 3 percent since December, 2019.
HDFC Bank Q4: Break-up of domestic retail advances
Analysts expect the real challenge for the bank to begin with the first quarter when the impact of the COVID-19 lockdown will reflect on the business. In the March quarter, the bank has already made some provisions against the COVID-19 impact.
Banks are offering moratorium facility to borrowers for all term loans during March-May. But the true picture will emerge once the moratorium period is over.
Post the Prime Minister’s announcement of extension of nationwide lockdown, various agencies had cut the GDP forecasts for FY21 drastically. Some even predict a contraction in full year economic growth. The economic slowdown will reflect in the asset quality of banking sector.
In the recent months, the general economic slowdown and the collapse of Yes Bank impacted the private banking industry. IndusInd Bank in a regulatory filing on March 30 said its deposits have shrunk by 10-11 percent since Q3.
The bank attributed much of this (about 70 percent) to some government- accounts moving money out of the bank and the rest by corporate houses. Similarly, RBL Bank said it has seen 8 percent decline in its deposit book.
Banks with higher exposure to microcredit, such as Bandhan Bank and IndusInd Bank, are likely to see higher slippages in this segment.
Adding to the challenges of HDFC Bank is the uncertainty over the leadership change. HDFC Bank’s managing director Aditya Puri is set to retire in October this year. There is no clarity on Puri’s successor yet.
On April 8, the bank intimated stock exchanges that the Reserve Bank of India (RBI) has put on hold the appointment of two key executives on the Board.
The RBI said the appointment of Sashidhar Jagdishan and Bhavesh Zaveri each as an Additional Director and Executive Director (Whole-Time Director) of the Bank should be put on hold until the new managing director and chief executive officer takes charge.
Resolving the succession issue at the earliest is key for the bank. Above all, the COVID-19 presents an enormous challenge ahead.