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HDFC Bank Q3 Preview: Steady Earnings Due To Lower LDR, Better NIMs Likely

HDFC Bank is positioned to deliver steady growth and profitability, Motilal Oswal said.

HDFC Bank Scheduled Downtime
Brokerages expect HDFC Bank's deposit growth to be better than credit growth in October-December. (Photo source: Vijay Sartape/NDTV Profit)

HDFC Bank Ltd. is expected to report steady earnings for the December quarter with lower loan-to-deposit ratio, amid softer loan growth and stable asset quality and margins, according to brokerages.

According to a poll by Bloomberg, India's largest private sector bank is set to report profit after tax of Rs 16,596 crore.

"HDFC Bank is positioned to deliver steady growth and profitability, supported by strategic liability management, margin recovery, and a strong focus on asset quality," Motilal Oswal Financial Services Ltd. said in a pre-earnings note.

Brokerages expect the bank's deposit growth to be better than credit growth in October-December, leading to an improvement in loan-to-deposit ratio marginally.

"Expect muted NII growth of 7% on slower loan growth, and PAT to grow 2% YoY. Advances growth of 3% YoY while deposit growth at 16% YoY, leading to LDR fall below 100% to 99.2% in Oct-Dec," IDBI Capital said in a pre-earnings note.

While the bank's credit growth is significantly below industry growth, margins are likely to remain stable sequentially, with a slight positive bias, Axis Securities said in a note.

This has come as HDFC Bank has been navigating post-merger short-term challenges, including high CD ratios and inherited high-cost borrowings, with a strategic focus on deposit mobilisation and balance sheet optimisation.

"Slower credit growth and elevated opex, as the bank continues to build franchisees, could keep earnings in check," Emkay Global Financial Services said.

HDFC Bank Q3 FY25 Estimates (Standalone, YoY)

  • Net Profit up 1% at Rs 16,590 crore.

  • NII rising 9% to Rs 30,992 crore.

  • NIM seen up by 4 bps at 3.53%, but flat QoQ.

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The focus remains on the progress of net interest margins, which is expected to be positive in the medium-term, Kotak Institutional Equities said. Prabhudas Lilladher Pvt. expects margins of the bank to remain steady at 3.58%, as a decline in yields will be offset with a decline in cost of funds.

Margins are stabilising, with NIM improving to 3.46% in July-September, Motilal Oswal said. The bank expects further recovery in margins as high-cost borrowings mature and the mix shifts toward high-yielding assets. The brokerage expects the bank's NIMs at 3.6% by 2026-27 (Apr-Mar).

While most brokerages project NIMs to improve or remain stable, Nomura Research expects some moderation due to decline in CD ratio, weak current account and savings account and higher growth in corporate loans.

Profit after tax growth for the bank could be lower due to higher tax, the brokerage said.

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Analysts expect asset quality to remain stable with slippages under control for the bank in the third quarter. Robust provision buffer of Rs 26,200 crore also offers comfort against potential credit risks.

Prabhudas Lilladher expects provisions to increase by 25% due to ageing, increased slippages and prudent accounting practices. It said that gross bad loans could worsen by 7 basis points sequentially, due to increased slippages.

Overall, operating efficiency is improving, with stable cost ratios despite continued investments.

Pre-provision operating profit could decrease during the quarter due to higher operational expenses and lower other income.

The management commentary on deposit accretion, credit growth and the outlook on margins will be keenly watched out for. Analysts are also expecting some commentary on unsecured loan portfolio as well as asset quality.

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