#HDFCBank Q4 Updates: Private lender adds Rs 1.66 lakh crore worth of deposits in January-March quarter.
Ashika Stock Broking's Asutosh Mishra and Complete Circle Wealth Solutions' Gurmeet Chadha discuss results.
Ashika Stock Broking's Asutosh Mishra and Complete Circle Wealth Solutions' Gurmeet Chadha discuss results.
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00:00 Ashutosh, with regard to the numbers itself, the deposit growth of 7.5%, first off, your
00:07 initial assessment of what that number looks like, is it largely a beat?
00:13 Because when I was speaking with analysts earlier today, pretty much everyone I spoke
00:17 with was suggesting it's quite a beat.
00:20 Yeah, it's quite a beat and we all were worried about the lagging deposit growth versus the
00:27 loan growth which we were witnessing in the post-mortem scenario for the HDFC Bank.
00:32 With this deposit growth, definitely bank has shown that they are now taking up the
00:38 whole deposit growth also very seriously and addressing the major investor concern regarding
00:43 the liquidity ratios and the CD ratio.
00:46 So in my view, this is a very positive development from the bank perspective.
00:50 Yes, it will have a marginal impact on the NIMS, probably in the first quarter, not in
00:56 the fourth quarter also, but in the first quarter.
00:59 But if you look overall, the type of things, the alignment which they have done for the
01:04 home loan portfolio of HDFC Limited, we may not see any major impact even on the NIMS
01:11 front.
01:12 Sure.
01:13 Gurmeet, sorry, I also want to welcome, you know, we're joined also by Gurmeet Chadha,
01:19 who's the CIO at Complete Circle.
01:22 Welcome, Gurmeet.
01:25 It's good having you here.
01:27 Gurmeet, your views, first off, with regard to the numbers itself, you know, a very strong
01:35 set especially on the deposit front.
01:39 On the advances front, do you think it's a purposeful calibration?
01:43 Discussing HDFC Bank right now?
01:47 Yes, please, Gurmeet.
01:48 Yes.
01:49 No, I think this is the update probably which has got some concerns addressed.
01:55 In my view, I think what I'm impressed is with the retail.
01:59 You have to look at numbers quarter on quarter, as rightly mentioned on the screen, why can
02:03 we be misleading post-mulger?
02:05 So I think their advances, you know, figure is now 25.8 lakh crores.
02:11 The gross deposits actually has grown 7.5% quarter on quarter.
02:15 That's like almost added 1.66 lakh crores deposits.
02:18 My sense is their market share in deposits could be upwards of 25% and the overall numbers
02:23 come in Q1.
02:24 This is quite a good number.
02:27 Also the credit deposit ratio, which was some concern, improved to 105%, which means they
02:32 are not at the market because if this issue had further worsened, which means the cost
02:36 of funds would have gone up and, you know, the margins would have again got impacted.
02:40 I would be interested in knowing the NIMS now.
02:42 There'll be some assistance also from the Treasury Gates with 10-year G-Sec closing
02:48 at about 7.05 for this quarter, which is March ended versus the app, you know, yield being
02:54 around 7.15, 7.20, you know, in the December quarter.
02:58 So Treasury Gates should also assist.
02:59 So I think it should be a good quarter for them.
03:01 And I think this is what the market was looking at.
03:04 Can they just, you know, turn around after the merger?
03:07 How long does it take to get the CASA ratio back in the 40s?
03:11 It's already jumped back to 38% plus.
03:14 And this was available in the last three years, in terms of HDFC was lesser than every hand
03:20 you've done in HDFC bank for two to three years.
03:23 So I think at some point of time, I think it should, I think re-rated or de-rated for
03:28 the last two, three years.
03:30 My sense is another good quarter and the stock will be right back where it belongs to.
03:34 So point taken, Gurmeet.
03:37 So those are initial thoughts.
03:38 Let me again take it to Ashutosh.
03:40 Ashutosh, the concern has been, and Gurmeet, you as well, the concern largely has been
03:45 with regard to loan to deposit ratio.
03:47 Now I've just done some quick back of the envelope numbers.
03:51 112% was the LDR at the end of Q3, basis the Q3 numbers.
03:56 It's fallen to 105%.
03:58 And the long-term average that HDFC bank clocks is between 85 and 90%.
04:03 Ashutosh, basis your numbers, your math, you know, basis your estimates, how quickly can
04:09 HDFC bank go towards that maybe even 95 or 90% number?
04:14 Because that's where the street will start to see comfort, right?
04:17 No, it is not right comparison to take the pre-merger scenario of HDFC bank and taking
04:22 that numbers.
04:23 The simple reason is that the long-term loan book is being funded by some of the long-term
04:28 bonds of HDFC limited.
04:30 And it will take some time to go to that number.
04:33 Even from the RBI perspective, if you look at multiple time press and everyone has asked
04:37 this question out there, RBI also don't want to create a scenario where a home loan portfolio,
04:43 which is an average in India across eight years, really will get funded through a term
04:48 deposit or a little CASA deposit of, you know, a majority file lesser than that.
04:55 So I don't think so that we need to compare it 85 or 90%.
05:00 Even if it comes near to 100%, it will be much more comfortable.
05:03 What more we need to see really is the NIMS.
05:08 NIMS has dipped substantially for the HDFC combined entity and how the NIMS trajectory
05:13 is going to be there.
05:14 And that's where the direct impact on the profitability will be felt from that angle.
05:17 So we need to look from that angle more rather than just looking at a CD ratio.
05:23 And even from the CD, it's more important to look from the LCR perspective, not absolutely
05:27 CD ratio.
05:28 Okay, right.
05:29 Ashutosh, I take your point.
05:32 I think you have a very similar opinion with regard to how LDR should shape up.
05:38 Do you think 100% LDR would therefore start to see loan growth start to come again?
05:45 Is that how one can look at it?
05:48 I think next quarter, hopefully, I mean, so they are down to 104 and 105 already.
05:53 I think next quarter should be closer to 100 in my view, because a lot of the deposit mobilization
05:58 is momentum.
05:59 And I've been speaking to a lot of friends, being an ex-HDFC banker, their sheer focus
06:04 they have on deposits is clearly visible in large numbers.
06:07 I think that momentum will help them do that.
06:10 Also, I think the timing of the merger, because the cost of funds kept going up, interest
06:15 rates were going up, also had a role to play.
06:18 When you take over 6, 7 lakh crores of loans on your boat, and you want to mobilize deposits,
06:26 it takes time.
06:27 And HDFC, which is able to do that, to give you a perspective, they've added deposits
06:31 in this quarter, which are total deposits of an IDFC or a Federal Bank.
06:34 So that's the kind of a machine it is.
06:36 And they've been opening 1,500 branches.
06:37 So they're doing a lot of OPEX as well, in terms of being ready, in terms of being digital.
06:43 I think one thing which is shining out is also the improvement in CASA.
06:47 And that is where the NIMS will come back, as I said.
06:50 And that's something market will watch very closely.
06:52 Also, the breakup of the loan advances is interesting.
06:55 So if you see, the retail loans are up 3.7%.
06:59 The rural and the commercial loans are also up almost 4% quarter on quarter.
07:04 It's the corporate loans which have shown some slight degrowth.
07:08 So even the mix of advances is good, which would aid the profitable growth, if I can
07:13 put that metric.
07:14 And I think that market should like when the final numbers come.
07:17 Sure.
07:18 Gurmeet, you are known as an investor in HDFC Bank.
07:22 You've been bullish on it over the last couple of months.
07:24 I never have spoken with you.
07:25 You've been quite bullish on it.
07:28 Now just one piece that's been bothering me since the morning is they spoke in Q3.
07:34 The commentary that came through was with regard to deposits, they were not willing
07:38 to grow their wholesale deposit book.
07:41 In fact, the wholesale deposit book had de-grown.
07:44 This time around, they've actually leaned on the wholesale deposit book to grow the
07:48 overall deposit.
07:49 So retail grew at 7.
07:51 Wholesale has grown at 10.9%.
07:54 So do you therefore believe that there has been a shift in strategy of some sort or do
07:59 you think the environment has started to shift or is it just Q4?
08:05 I think it's a bit of all three, as you rightly said.
08:08 And March, typically banks tend to do that.
08:10 It's not that HDFC has done.
08:11 You'll find that in a lot of... there's a sheer pace of competition on deposits.
08:16 It's very evident when you speak to family offices, corporate treasuries and HNIs.
08:20 It's a bit of a March phenomenon, a bit of a merger phenomenon, a bit of pressure from
08:25 market analysts.
08:26 And it's a combination of all three.
08:28 But I don't read too much into it.
08:29 As I said, the CASA growth is also impressive.
08:31 That is something I would have... had it only been wholesale, I would have been a little
08:35 worried.
08:36 But if it's a combination of that, it's perfectly fine.
08:38 Also, the rates are also peaking out.
08:40 You will also see softening of rates.
08:42 So it could be a bit of a March phenomenon also.
08:45 Also, in my view, I think the important thing to note is that, you know, on a 25 lakh crore
08:50 balance sheet, if you do this kind of growth numbers, it's job well done.
08:54 And even some of the other banks, you know, I think even Federal posted a very good set
08:57 of numbers.
08:58 I think financials are due, in my view.
08:59 It's been... you know, if you see the bank Nifty is hardly up 70-80% last two years,
09:04 from let's say 41-42 to 47,000.
09:07 And the EPS growth is almost 55%.
09:09 It's a classic de-rating which has happened on financials and NBFC.
09:13 And NBFC is probably the de-rating is more.
09:15 I think as the cycle turns this year, equity eases, rate cut cycle starts at some point,
09:20 I think financials should come back, make a strong up.
09:23 Okay.
09:24 Gurmeet, we'll come to Federal, we'll come to RBL, we'll take your views on that as well.
09:28 But before that, Ashutosh, one last question with regard to HDFC before I cap that off.
09:34 Ashutosh, they've guided for doubling of the loan book in four to five years at the time
09:41 of merger.
09:43 Possible, given the environment and given everything that has changed, because that
09:48 is something that hasn't been addressed, especially in the recent Goldman Sachs conference where
09:55 they spoke about or rather Shashidhar Jagdishan spoke about how they might calibrate loan
10:00 growth.
10:01 But do you think loan book will double or that may not happen now?
10:06 Like if you see the type of organizational structure or the machine which they have created
10:12 on this front, if they want, they will be able to do that.
10:15 If they want to control that, they will be able to do the same point of thing.
10:20 I don't think so that the opportunity is there in the front of HDFC Bank, that the way our
10:25 economic is growing it at this point of time is clearly saying that in four to five years,
10:31 banks can double their loan book.
10:33 But if suppose one, we think we just need to keep one thing in mind is that the priority
10:38 sector lending, that need to be cashed back along with the loan book.
10:42 So that's why, and that is a very important perspective from the NIMS and that will be
10:47 start kicking in somewhere three years down the line.
10:50 So from the future growth perspective, we need to see the balance between the growth
10:55 in the normal loan book and the growth in the priority sector loan book of the HDFC
10:59 Bank.
11:00 I don't think that they will be able to deliver on that front.
11:03 Their strategy is working in the right direction.
11:06 And no, but we need to wait and see on that front.
11:09 They can able to do it, but they may calibrate in between like what they've done for the
11:15 fourth quarter in this year.
11:17 Okay.
11:18 I take your point.
11:19 Gurmeet, NIMS recovery on everyone's radar.
11:22 Very quickly, because I need to slip into a break.
11:25 Very quickly, when do you see NIMS recovering now that we have visibility on deposit growth?
11:29 I think some improvement this quarter.
11:32 I think the better would be when you will see significant drop in overall cost of funds.
11:35 The 10-year is dropping, so there will be some impact.
11:38 I think when the bond inclusion happens in June, my sense is the overall cost of funds
11:42 for the system will come down.
11:43 And that is something which is more structured.
11:45 So maybe bigger improvement in Q1 of next year, post Q1 of next year, I think is what,
11:49 but the market may start pricing again.
11:51 Also, there's a bit of an FTSC rejig.
11:53 You'll see some passive growth also coming.
11:55 But I think more paving towards HDFC and lesser toward overall financial.
11:59 Also, I think some of the NBFCs will come back.
12:02 I think they've been a bit of out of favor with RBI actions, focus on more compliance
12:07 on the NBFC front.
12:09 I think there is some good quality NBFCs.
12:11 Already Bajaj Finance and the likes of Poonawalla have shown some recovery.
12:14 I think you'll probably see better on NBFCs also making a good comeback.
12:18 Ashutosh, how do you look at some of these numbers and at the system as a whole?
12:23 Do you think that this is just seasonality or do you think that there is a strong, solid
12:30 growth of deposits which are being targeted by these banks and they are achieving that?
12:34 Yes, there is a possibility there is seasonality in the fourth quarter, which we cannot deny
12:41 upon it.
12:42 But as maximum of the banks are now focusing back on the deposit, they have put their system
12:48 to acquire more and more customer deposit part of it.
12:52 And that is also working.
12:54 And only thing which we need to go forward, focus upon how they balance between these
12:57 two part of things, loan growth versus deposit growth, or even they are trying to use some
13:03 other source of funding.
13:04 Like, you know, Gopi was discussing just now that India is going to include it in the bond
13:10 market and probably we are going to see some change in the funding mix of the Indian banks.
13:15 Like globally, if you look at, you know, banks are not only funded through the deposits,
13:19 they are also funded through the other source and probably we may see spark of funding coming
13:27 of the banks from the other sources over and above the deposit part of it.
13:31 So with India's inclusion in the global bond index, probably that market will be start
13:36 getting focused also from the next year onward.
13:39 Okay, you know, Ashutosh Suryodaya, I want to try and focus on 14% sequential on advances.
13:49 How do you look at and how do you build in such numbers?
13:53 Do you think that there could be a pocket, especially in the small finance bank segment,
13:58 AU also grew 9% both on deposits as well as on loans sequential.
14:04 Do you think small finance banks are in a bit of a sweet spot when it comes to growth
14:08 and any concerns in the sector space that you look at?
14:13 So yes, especially when we look at a small finance bank, CD ratio become very important.
14:18 Like my view is that larger banks, CD ratio may not be the right because they have a very
14:22 different portfolio and they also take funding from the larger bond and other group.
14:27 Whereas small finance bank, they are primarily, you know, take their funding from the deposit
14:32 group on that front.
14:33 So balancing the deposit growth is a very important for any small finance bank.
14:38 Maximum of them are delivering very strong growth because especially in MFI sector, we
14:42 are witnessing a very strong growth from the last four quarter and a small loan.
14:46 AU is not purely MFI, it's having a lot more of a small, other non-MFI personal small loan.
14:56 So we are witnessing a very strong growth in that segment and these banks are very well
15:02 positioned to deliver on that front.
15:06 What we need to see the balance, how they are able to, at what cost they are able to
15:10 raise the deposit, that will be important to watch out for.
15:13 And is there any asset quality issue is getting emerged out of this?
15:17 We are into the election session.
15:19 Till now, the time we have not got any loan waiver or announcement from any of the political
15:24 party.
15:25 So we are not much concerned.
15:26 But if suppose these real things start coming in, then probably we need to be a bit cautious
15:31 upon some of these banks.
15:32 But at this point of time, I don't see any risk.
15:36 Okay.
15:37 And Ashutosh, what's the pocket you like in this?
15:40 You also had something like a South Indian Bank come out with slightly weaker numbers,
15:43 Karur Vaishya and the like.
15:45 What is it that you are liking within the banking space, not just for Q4, but also in
15:50 terms of valuations?
15:52 Is it private sector?
15:53 Is it public sector at the moment, even now?
15:56 Or is it the small finance banks or the mid-sized kind of banks, something like a federal, equitas
16:00 and the like?
16:01 So my preference at this point of time is more towards the mix of a large private and
16:07 public sector.
16:08 The larger banks which are better positioned to take advantage of what is happening in
16:11 the economy at this point of time.
16:15 And even we are going to enter into the interstate cut cycle.
16:18 So larger banks will be able to take the benefit of that also in the first stance.
16:22 So both on public and private, larger banks will be able to get benefit.
16:26 And if you look at the public sector banks, it will be SBI, Bank of India, Indian Bank,
16:34 these will be the major beneficiary.
16:35 Bank of Baroda is also doing quite fairly well on that front, Bank of Baroda and Canra.
16:40 In the private sector banks, HDFC banks look very attractive to me.
16:45 And a simple reason is, if you look at the type of de-rating which we have seen, and
16:50 if they start now, post merger, they start delivering on the value proposition which
16:55 they have promised in the last three to six months, then probably slowly they will start
17:00 catching up the investor attention again, which was lacking till now.
17:06 Okay.
17:07 Gurmeet, your quick views, your last take with regard to the banking sector as a whole,
17:12 what is it that you are finding value in?
17:14 Of course, HDFC, your preference is very, very clear.
17:17 But outside of that, would it be the larger ones, Kotak, ICICI, Axis, would it be large
17:23 private, PSU, large, small, your mid-sized banks, federal, yes, RBL, or would it be something
17:30 like a small finance bank?
17:32 So, actually, a combination of that.
17:36 So I think in mid-sized banks, we like federal bank.
17:40 I think the retail loan mix is improving.
17:42 Right now, the mix is now 55% towards retail, 45% is wholesale, and they're growing the
17:48 retail book almost ahead of the system credit growth.
17:52 Last quarter also, it's 20% YOY, and sequentially also probably seems to be gearing market share.
17:58 The management, I think, should meet the guidance of 20% credit growth.
18:01 CASA still remains a challenge, but I think gradually, I would like to see that number
18:07 go beyond 30%, which is the current CASA ratio.
18:10 It's actually a tad below 30%.
18:12 Also, the mix is changing, so they're focusing more on high-yielding retail assets like PN,
18:16 credit cards, a bit of microfinance as well.
18:20 So we like that.
18:21 We also like PSUs like SBI and Bank of Verona.
18:25 I think Kotak, because the balance sheet is much smaller than SGFC, should see faster
18:30 turnaround, waiting for updates from Kotak.
18:32 Compared to SGFC, their balance sheet is one-fifth of that.
18:36 You can probably see a better turnaround considering the share size and the strength Kotak has
18:40 as a franchise.
18:41 Also, as I said, I'm looking at some NBFCs.
18:45 I think Bajaj Finance also is due.
18:48 I think with the housing IPO and they're subscribing to the right issuer plus has got de-rated
18:53 a bit in the last couple of years.
18:56 Also looking at some niche NBFCs and small finance players, we like Eugro Capital, which
19:01 is focused on MSX.
19:03 Right.
19:04 Plenty of names to think about, and Bajaj Finance's numbers also awaited.
19:08 But it's been a good, meaningful conversation, I hope, for viewers as well.
19:13 Thank you, Gurmeet.
19:14 Thank you, Ashutosh, for joining us and giving us all of that perspective, completely out
19:17 of time on this edition of the show.
19:19 From myself, everyone who put this show together, thanks so much for watching.
19:23 More on the other side.
19:24 Stay tuned to NDTV Profit.
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