HDFC Bank plans to double balance sheet in 4-5 years
Despite near-term pressures, HDFC Bank’s balance sheet will double over the 4-5 years, driven by merger synergies, according to the management’s comments at an investor meet.
The management is confident of maintaining RoA (return on assets) of 1.9-2.1 per cent in the immediate term post the merger, and possibly deliver over 2 per cent RoA in the long-term, they said in the meet organised by Macquarie Capital.
Macquarie said that while the bank remains the top pick in the sector, it is expected to see near-term pressures on margins, adding that the recent incremental CRR (ICRR) requirement could also add to the pressure in the absence of any regulatory exemption. The firm has a ‘outperform’ rating on the bank’s stock.
Net interest margin (NIM) for the bank fell from 4.3 per cent to around 3.9 per cent post the merger, and is expected to further decline to 3.6-3.7 per cent in the near term.
Prior to the merger, HDFC had built excess liquidity buffer of close to ₹1-lakh crore, due to which combined LCR (liquidity coverage ratio) was 125 per cent. The bank expects to redeploy the excess liquidity over the next 2-3 quarters.
Simultaneously, HDFC Bank also avoided taking some deposits from corporates, trusts etc at differential pricing in order to slow down deposit growth. While core retail deposits continue to be a focus area, the bank is now also looking to leverage HDFC’s expertise to drive resource mobilisation through long term infrastructure bonds.
Cost to income ratio is seen falling from 43 per cent pre-merger to about 40 per cent now. The bank aims to further bring this down to 35 per cent over 4-5 years.
“Replacement of HDFC’s borrowings with lower cost borrowings and harnessing the power of bundling group products could further enhance RoA in the long term as per the CEO,” Macquarie Capital said.
The private sector lender pegged growth in net advances at 13-15 per cent for FY24 due to run down of HDFC’s corporate book and IBPCs (interbank participatory certificates). Core NIM is expected to be 3.9 per cent and core loan growth 18-20 per cent, the note said.
HDFC Bank said it is seeing mispricing in the corporate loan segment and in personal loans to some extent. On the other hand, the rate of mortgage disbursements is already higher than HDFC’s monthly disbursements.
The management also reiterated that will maintain open architecture across subsidiaries to avoid complacency and encourage healthy competition to offer best in class service and products while utilising Group synergies.
For bancassurance specifically, the bank will identify underperforming branches and accordingly scale up with the long-term aim of growing the share of HDFC Life’s products in HDFC Bank’s counters to 70 per cent from the current 55 per cent.