HDFC Bank Q2 Update: CASA Ratio Dips 780 Basis Points On Mega Merger

HDFC Bank Ltd.'s low-cost current account-saving accounts deposits fell after merger with with Housing Development Finance Corp.

The CASA ratio stood at 37.6% as of Sept. 30, falling 780 basis points from a year earlier, according to an exchange filing on provisional figures on Wednesday. Sequentially, the CASA ratio fell 490 bps from 42.5%.

However, deposit growth stayed strong in the second quarter of the financial year, rising 30% year-on-year to Rs 21.7 lakh crore. On a quarterly basis, the deposits were up 14%.

Home-loan disbursals for the July–September period rose 11% year-on-year to 48,000 crore.

The gross advances surged 58% to Rs 23.5 lakh crore due to the merger. This included transfers through inter-bank participation certificates and bills rediscounted.

The domestic retail loans rose 112% year-on-year, while commercial and rural banking loans grew by 30%. Corporate and other wholesale loans saw the slowest growth of around 8%.

However, non-individual housing loans from HDFC Ltd. stood at over Rs 1 lakh crore as of Sept. 30.

The bank is also making some changes in its management for the first time since May 2021, according to an internal memo that was viewed by BQ Prime.

In a sell-side analysts call held in September, Chief Financial Officer Srinivasan Vaidyanathan had mentioned that the bank is likely to see its bad-loan ratios worsen marginally due to the merger.

Even in the annual general meeting held after the merger, Chief Executive Officer Sashidhar Jagdishan mentioned that the net interest margin is expected to drop in the second quarter.

According to an Alliance Bernstein report, HDFC Bank has presented a "good set of numbers", given several concerns post the analysts call. The deposit growth numbers stand out as the biggest positive, it said.

However, the continued contraction in the eHDFCL non-retail book raises some questions on the extent of drag in asset quality and growth that's still pending from this segment, the report said.

The firm reiterated HDFC Bank's 'outperform' rating with a target price of Rs 2,100, implying an upside of 39%.

Jefferies Financial Group Inc. also maintained HDFC Bank's target price at Rs 2,030 with a 'buy' rating as of Oct. 3.

Of the 47 analysts tracking the lender, 44 maintain a 'buy' and three recommend 'hold', according to Bloomberg data. The average of 12-month analyst price targets implies a return potential of 30%.