HDFC Bank Ltd - Jan 2025 Earnings Call Transcript Analysis

January 29, 2025 · 4 min read

Earnings Call Transcript Analysis Report #

Average Deposit Growth: ~15% YoY.
AUM Advances Growth: 8% YoY.
Cost Growth: 7% YoY.
Net Interest Margins (NIMs): “reasonably range-bound and stable despite the headwinds from tight liquidity”. Started at 3.4% post-merger and remained in a “stable band”.
Provision Coverage Ratio (PCR): 68% overall; 71% excluding seasonal agri impact (flat QoQ ex-agri).
Cost-to-Income Ratio: Stable around 40.5% (“between 40%, 41%”).
Cost-to-Assets: ~1.93%.
Slippages: “Excluding the seasonal agri, the slippages are flat period-to-period.”
HDB Financial Services Credit Costs: Increased Q-o-Q from 1.8% to 2.5%, driven by higher Stage 3 provisions, including management overlays due to economic forecast changes. Stage 2 improved QoQ.
Trading Income: Impacted by INR 2.5 billion negative MTM on inherited equity positions.
Tax Refund: INR 2 billion received in the quarter (vs INR 0.5 billion prior quarter).
Agri Interest Reversal (on NPA): Estimated INR 1-1.5 billion impact in the quarter.

Deposit growth (15% avg) is outpacing loan growth (8% AUM YoY), aiding CD ratio normalization.
Cost growth (7% YoY) is contained relative to branch expansion (1000+) and inflation (5-6%).
NIM stability achieved despite higher funding costs (TDs replacing CASA) offsetting gains from reduced borrowing costs. CFO: “good amount of the tailwind that has come to reduce the borrowing cost… has been offset by the CASA”.
PCR (68%) lower than some peers, explained by portfolio mix (higher retail/unsecured, faster write-offs) and NPA vintage. CFO: “it depends on the mix of products, secured, unsecured that come in and go out.”

No new explicit numerical guidance provided. Management reiterated previous loan growth outlook relative to the system: FY25 < system, FY26 = system, FY27 > system. CEO: “whatever we had committed… that is the kind of commitment that we continue to maintain. We are on track”.

Strong growth in deposits, particularly time deposits (22.7% growth). Moderated loan growth, especially in Emerging Corporates (stable QoQ) due to pricing discipline. CASA ratio under pressure due to higher interest rates.

Primary focus remains on normalizing the Credit-Deposit (CD) ratio by growing deposits faster than loans. CEO: “progressing well in our journey to normalize our credit deposit ratio with the deposit growth outpacing our loan growth.” Conscious calibration of loan growth via credit models and pricing discipline.

Focus on integrating HDFC Ltd.’s mortgage customers into the bank’s full product suite. CFO: “getting the liability accounts opened, we are like 96%, 97% successful for any new to bank incremental mortgages… About 1.9 million of them [ex-HDFC Ltd customers] so far, we have been successful to bring them on the liability relationship.”

Continued branch expansion (1,052 added in 12 months). Significant investment in technology (now >10% of costs). Tight cost management despite expansion. Active treasury management, including buying back INR 44 billion of bonds. Focus on employee productivity. Deliberate shedding of high-cost, low LCR value wholesale deposits from the HDFC Ltd book.

Merger integration is the key ongoing initiative, focusing on customer onboarding, cross-selling, and branch enablement (80%+ branches activated for mortgages). PSL compliance management involves organic growth, portfolio buyouts (IBPC/PTC), and PSLC purchases.

Operating in a “very challenging macro environment, with tight liquidity conditions, signs of moderating urban demand, a tepid private capital expenditure programs…”. Intense competition for deposits leading to a “tight pricing environment”. Shift in deposit mix towards time deposits system-wide due to high interest rates. Spread compression observed in corporate and emerging corporate lending. CEO: “spreads are tightening”. Some positive signs noted: rural demand pickup, government spending increase, strong services exports.

Gaining deposit market share (“continued to gain market share”). Maintaining a strong credit quality profile (“credit USP,” “resilient and stable”). Lower RWA density (~67%) compared to peers. Lower overall loan yields than some peers, attributed to risk profile and mix. Best-in-class cost-to-assets ratio (~1.93%).

Tight liquidity and high deposit costs are major challenges impacting NIMs and CASA. Spread compression limits ability to pass on costs. PSL compliance, particularly for Small/Marginal Farmers (SMF) and weaker sections, remains a focus area (“percentage point or so that we do need to close on SMF and the weaker section”). Opportunity seen in rural demand and potential.

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