HDFC Bank posts robust Q4 results, but cautions on road ahead

Private sector lender HDFC Bank was the first amongst banks to announce fourth quarter and annual results for 2019-20, which revealed robust growth but caution going ahead due to the coronavirus pandemic.

On Monday, the bank’s scrip was up 3.7 per cent in early morning trade on BSE.

In an analyst call after announcing its results for the quarter ended March 31, 2020, the bank’s management noted that the lockdown and social distancing policies have had an impact from the latter half of March in terms of loan origination, distribution of third party products, payment products, activities and inability to deploy collection efforts fully.

In its results on April 18, HDFC Bank, which is the country’s largest private sector lender, registered a 17.7 per cent increase in net profits at ₹ 6,927.7 crore for the fourth quarter of the fiscal year 2019-20 but said that the extent to which the Covid-19 pandemic will impact its results in the future is still not certain.

“The extent to which the Covid-19 pandemic will impact the bank’s results will depend on future developments which are highly uncertain, including among other thing, any new information concerning the severity of the pandemic and any action to contain its spread or mitigate its impact…,” it said in the results while setting aside ₹1,550 crore as credit reserves relating to COVID-19 in the form of contingent provisions.

The bank's net revenue growth was health and asset quality was stable in the fourth quarter.

Its Board has finalised three candidates for the post of Managing Director and CEO to succeed incumbent Aditya Puri whose term is set to end on October 26, 2020.

Significantly, on the issue of availing the moratorium, the lender said that in the wholesale and SME banking side, it is difficult at present to assess the number of customers availing the facility. It is however expected that small players with less access to the market are likely to avail this facility. It has received very few applications from wholesale customers.

On the retail side also, the number of customers applying for a moratorium is in low digits, the bank said. Of those who have applied, nearly 95 per cent to 98 per cent are not in default as on February 29, 2020 but are availing it largely from a caution perspective rather than fear of any stress. The bank surveyed about 1,000 customers to get feedback

While HDFC Bank has an opt-in facility for the moratorium, HDB Financials adopted a different methodology and provided moratorium to all its customers.

Analysts said the bank is better placed against the current slowdown than many of its peers but will see some impact of the slowdown.

“Undoubtedly, HDFC Bank is better positioned to weather the storm; however, in times of economic dislocation, it is sensible to remain conservative assessing the multiplier adverse effect of Covid-19. We anticipate the bank’s loan growth to moderate to 12 per cent, net interest margin to contract by 9 basis points (due to focus on quality),” said ICICI Securities in a note.

“CV/CE and unsecured retail loans to the self-employed segment needs to be monitored amidst COVID-19 and we expect rising delinquency trends in the near term,” said Motilal Oswal, adding that business growth remains robust for the lender in a tough macro environment where economic activity is getting impacted due to the Covid-19 outbreak.