HDFC Bank's asset quality remained strong with robust underwriting and risk-calibrated lending, evidenced by the gross on-performing asset/net-non performing asset ratios of 1.4%/0.5%, prudent provisions, and resilient asset quality across sectors.
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Motilal Oswal Report
HDFC Bank Ltd. has intentionally slowed down its business growth and has maintained a healthy pace of liability accretion amid a very challenging macro environment. The bank has been delivering a resilient performance on asset quality supported by its robust underwriting and strong understanding of market cycles.
Over the past few quarters, the margins have remained within a narrow range aided by improving asset mix and retirement of high-cost borrowings, though the CASA mix continues to remain under pressure. Asset quality remains broadly stable with PCR at ~70%.
The bank holds a healthy pool of provisions (floating + contingent) at Rs 259 billion/ 1.0% of loans. While management has not given any specific guidance on the credit/deposit ratio, it has indicated that it will actively focus on bringing the ratio down at an accelerated pace.
Consequently, we have factored in loan growth of 9.5%/13% over FY26/FY27E, while deposit CAGR is likely to sustain at ~15%. However, the gradual retirement of high-cost borrowings, along with an improvement in operating leverage, will aid calibrated expansion in RoA over the coming years.
We thus estimate HDFC Bank to deliver FY27E RoA/RoE of 1.8%/14.2%. We reiterate our Buy rating on the stock with a target price of Rs 2,050 (premised on 2.3x FY27E ABV + Rs 290 for subsidiaries).
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