HDFC Bank Q3: NII may grow 17% YoY; slippages in retail, agri segment eyed

HDFC Bank Q3 Preview: Private lender HDFC Bank will flag-off the December quarter earnings for large banks when it announces its Q3FY21 results on Saturday, January 16. Amid improving economic activity, analysts expect the lender to report higher-than-industry average loan growth, implying continued market share gains. However, net profit could come under pressure due to higher slippages and lower fee income growth.

Painting a grim picture, ICICI Securities forecasts a 17 per cent year-on-year (YoY) decline in the lender’s net profit at Rs 6,132.1 crore compared with Rs 7,416.5 crore net profit reported in the corresponding quarter of the previous fiscal (Q3FY20). Sequentially, the profit may contract 18 per cent from Rs 7,513.1 crore clocked in the September quarter of the current financial year (Q2FY21).

On similar lines, Edelweiss Securities pegs the profit at Rs 7,565.3 crore for the quarter under review, up 2 per cent YoY and 0.7 per cent QoQ.

However, Kotak Institutional Equities’ outlying projection pegs the bank’s net profit at Rs 8,669.7 crore, translating into a 17 per cent growth on year, and 15.4 per cent on quarter.

Top-line to grow in double digits

Consensus estimate for net interest income (NII) — income generated from interest received on loans extended after subtracting interest paid on deposits – shows around 15 per cent YoY improvement.

While analysts at ICICI Securities see the NII growing 12 per cent YoY, but flat sequentially, to Rs 15,848 crore, those at Antique Stock Broking peg the income at Rs 16,598.8 crore, up 17 per cent on year (5.2 per cent QoQ). NII was Rs 14,172.9 crore in Q3FY20 and Rs 15,776.4 crore in Q2FY21.

Net interest margin (NIM) is seen unchanged at 4.1 per cent compared with the September quarter of FY21. On a yearly basis, it would be a 20 bps dip from 4.3 per cent reported in Q3FY20.

“NIMs, due to higher slippages, should see some marginal downside. This, coupled with lower fee income growth, might lead to sub-10 per cent operating profit,” said an ICICI Securities report. The brokerage pegs operating profit at Rs 13,455.1 crore, up 4 per cent YoY but down 3 per cent QoQ.

Nirmal Bang Institutional Equities, Sharekhan, Kotak Institutional Equities, and Motilal Oswal Financial Services (MOFSL), however, expect the operating profit to grow in the range of 7 per cent to 16 per cent, up to Rs 15,025 crore. In Q3FY20, the operating profit stood at Rs 12,945.4 crore while it was Rs 13,813.8 crore in Q2FY21.

Loan book and asset quality

As of December 31, 2020, the bank’s advances aggregated to approximately Rs 10.82 trillion, up around 16 per cent relative to Rs 9.36 trillion at the end of December 2019, the bank said in a disclosure to the exchanges earlier this month. This was 4 per cent higher than advances worth Rs 10.38 trillion seen at the end of the previous quarter. Among these, ICICI Securities expects retail advances’ growth at 6-8 per cent while that of corporate advances’ to be at 25-30 per cent.

“The bank’s deposits aggregated to approximately Rs 12.71 trillion as of December 31, 2020, up around 19 per cent from Rs 10.67 trillion YoY; and around 3 per cent QoQ from Rs 12.29 trillion,” it added.

Edelweiss Securities expect loan growth to remain above industry growth leading to continued market share gains, and opportune pick up in corporate segments.

On the asset quality front, MOFSL would watch out for asset quality in agri-book, and in unsecured loans. On average, the gross non-performing asset (GNPA) ratio is seen between 1.3 per cent and 1.7 per cent. It was 1.1 per cent in Q2FY21 and 1.4 per cent in Q3FY20. The NNPA ratio is seen between 0.3 per cent and 0.4 per cent.

“We expect GNPA ratio to rise sharply led by higher slippages from the retail portfolio. The focus would be on the commentary on near-term asset quality trends and quantum of restructuring that is likely to be expected by Q4FY21,” said analysts at Kotak Institutional Equities.

As regards provisions, the buffer is seen in the range of Rs 3,148 crore and Rs 5,260.4 crore. The Mumbai-based bank had earmarked provisions worth Rs 3,043.6 crore in Q3FY20, and Rs 3,703.5 crore in Q2FY21.

Stock performance

At the bourses, the stock outperformed the benchmark Nfty50 during the quarter under review, but underperformed the sectoral Nifty Bank index. In three-months to December, HDFC Bank’s stock jumped 33 per cent on the NSE, as against a 24.3 per cent gain in the Nifty50 index, ACE Equity data show. In comparison, the Nifty Bank index was up nearly 46 per cent during the period.