HDFC Bank Q4 profit grows 37% but falls short of estimate

Net profit climbed less than a percentage point sequentially, underscoring the synergy challenges faced by the lender that merged its mortgage lending parent into itself last year.

The stock - with the highest individual weighting on the Nifty - had slumped nearly a fifth after a major earnings disappointment mid-January, although it has retraced some of the losses since. The scrip closed at ₹1,534 apiece on Friday and has lost 8% so far this year.

The management said it wouldn't pay more to mobilise deposits, which have lately trailed the pace of credit disbursements for the entire banking pack. "We are not looking at price as an incentive to bring in wholesale deposits," said Srinivasan Vaidyanathan, chief financial officer at HDFC Bank, on efforts to garner deposits. "We do not endeavour to give loans at lower rates; we are looking at the right quantity of origination and at a price point that we like."

Unflattering Sequential Stats
Vaidyanathan said historically, the bank had maintained a net interest margin of 4-4.2%, but the margins would be maintained at current levels - of around 3.5% - due to the change in the mix of products following the HDFC merger. Margins remained flat largely, with the core interest margin at 3.44% on total assets, and 3.63% on interest-earning assets.

On a sequential basis, net profit rose 0.84% due to core income growth and higher expenses, including floating provisions. Net interest income rose just 2.14% in the fourth quarter sequentially, while operating expenses rose 12.5%. Operating expenses for the fourth quarter were at ₹17,970 crore, which included staff ex-gratia provisions of ₹1,500 crore. To be sure, the bank's financial performance metrics are not strictly comparable on a YoY basis since HDFC was merged with the lender last July. "Asset quality remained broadly stable. We should see the bank gradually recouping the margins as the bank substitutes the high-cost borrowings with deposits and through a change in loan mix toward retail over the next couple of quarters," said Rahul Malani, research analyst at Sharekhan, by BNP Paribas.