• Healthy operational performance: HDFC Bank (HDFCBK) posted strong and in-line with expectations results for Q4FY2018. The bank reported healthy operational performance, as seen in its net interest income (NII) growing by 18% y-o-y to Rs. 10,657 crore and non-interest income jumping by 22.7% y-o-y to Rs. 4,228 crore. Healthy growth in non-interest income (OI) was fueled by robust 32% y-o-y uptick in core fee income (fueled by third-party distribution etc.) and 17% y-o-y growth in trading and Forex profit. Core net interest margin (NIM) during Q4FY2018 was stable sequentially at 4.3%, which we believe is a strong performance, as its NIM would still rank amongst the best in the banking industry. Provisions at Rs. 1,541 crore were up by 22.1% y-o-y (consisting of specific loan loss provisions at Rs. 1,132.5 crore, general provisions at Rs. 153.4 crore, and other provisions at Rs. 255.3 crore). During the quarter, HDFCBK reversed some of the general and specific provisions to floating provisions due recovery/upgrades in the respective accounts. Consequently, net profit increased by 20.3% y-o-y during the quarter to Rs. 4,799.3 crore, in line with our estimates.
• Stable asset quality and business growth: Asset quality of HDFCBK has been largely stable through several cycles and has been a key differentiator of the bank’s performance. During Q4FY2018 as well, HDFCBK saw stable asset quality as GNPA ratio and NNPA ratio stood at 1.30% and 0.40% as against 1.29% and 0.44%, respectively, in the previous quarter. While asset quality appears to have been stablising at 1+% GNPA levels, we believe due to the present banking environment and the large base of the bank, this is a positive show. HDFCBK saw advances growth of 18.7% y-o-y and 4.3% q-o-q, led by Personal loans (10.9% of Advances, up 43.6% y-o-y), credit cards (5.5% of Adances, up 38.9% y-o-y) and auto loans (11.6% of Advances, up 23.2% y-o-y). Loan mix between retail and wholesale was maintained at 55% and 45%, respectively. While RWA has grown by 25% y-o-y, it is much lesser than the Advance growth, partly explained by the rise in unsecured lendings. Deposits increased by 22.5% y-o-y, led by a strong 33% rise in term deposits; while CASA deposits were up by 11% y-o-y as a result of which CASA ratio declined by 44 BPS to 43.50%
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