HDFC Bank, following its merger with HDFC, has reported a slowdown in low-cost deposits during the second quarter, as per the pre-quarter update released on Wednesday. This update marks the first quarter after the merger of HDFC with the bank.
The bank’s current and savings account ratio (CASA) declined to 37.6% as of September 30, 2023, compared to 42.5% as of June 30, 2023. CASA accounts are considered low-cost deposits, and a decrease in this ratio may impact the bank’s cost of funds.
However, despite the slowdown in CASA deposits, the deposit book for the merged entity continued to show robust growth. It reached ₹2.17 trillion as of September 30, 2023, reflecting an 18.8% year-on-year increase. On a sequential basis, the bank’s deposit book grew by 5.3%.
Suresh Ganapathy, Head of Financial Services Research at Macquarie Capital, commended the bank’s performance, stating that it had raised ₹1.1 trillion in a quarter during the merger integration process. He also mentioned that if the bank sustains its current momentum, it could achieve its stated target of ₹4 trillion in deposits by the end of FY24, gaining significant market share in the process.
According to the update, HDFC Bank’s merged loan book experienced a 17.6% year-on-year growth, reaching ₹23.5 trillion as of September end, with a 5.5% sequential growth. The growth in the loan book was primarily due to the merger.
Domestic retail loans saw a remarkable 112% year-on-year growth, while commercial and rural banking loans grew by 30%. In contrast, corporate and other wholesale loans registered the slowest growth at approximately 8%.
Anand Dama, a banking analyst at Emkay Global Financial Services, noted that the bank’s business growth numbers exceeded expectations, and while the strong deposit growth could lead to margin pressure in Q2, he believed that the bank would witness a bottoming of margins in the same quarter.
HDFC Bank continued to see a reduction in its non-compliant book. Wholesale advances declined by 6% quarter-on-quarter and 20% year-on-year. The non-individual loan book from erstwhile HDFC stood at ₹1.02 trillion as of September 30, 2023.
In addition to its financial performance, HDFC Bank has undergone a management reorganization following the merger. This includes changes in leadership roles within the bank to streamline operations and adapt to the new structure.
Despite the positive growth in deposits and loans, the bank’s management has cautioned against potential challenges in the short term, including the impact on net interest margin (NIM), net worth, and asset quality due to the merger. There may also be a marginal worsening of bad loan ratios as a result of the merger, according to HDFC Bank CFO Srinivasan Vaidyanathan.
