Hdfc Bank Report

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- Healthy NIM of 4.4% supported the strong NII growth

Strong NII growth of 23% YoY was largely supported by NIM improvement of 20 bps YoY to 4.4%. NIM improvement was mainly driven by lower cost of fund. With interest rate trending south, we believe HDFC Bank will be able to keep its cost of fund under check and maintain its NIM at current level.

- Other income strong on the back of trading gains, operating expense in line

Other income grew by healthy 18% YoY to ` 25.3 bn in Q3FY15 mainly driven by strong treasury gains. The bank booked trading gains of ` 2.7 bn in Q3FY15 which is a staggering 422% YoY growth. The commission income growth was modest at 14.7% YoY to ` 18.1 bn. On the operating expense front, the growth was in line with estimate at 19.4% YoY to ` 34.6 bn. The cost to income ratio was largely flat on YoY basis at 42%.

- HDFC Bank investing in network again:

HDFC Bank continued to expand its headcount, up 12% YoY. The pace of network expansion also remained healthy 10% YoY, with around half of the new branches now appearing in metro and other urban areas. While these contributed to opex growth of 19% YoY, we believe that the increased investment spending bodes well for future growth.

- Asset quality strong:

Asset quality was healthy with GNPA’s at 0.99% of loans; stock of un-provisioned problem assets (Net NPAs 0.3%, restructured loans 0.1%) is still low. The impeccable asset quality was maintained in Q3FY15 with absolute GNPA increasing by mere` 1 bn QoQ to ` 34.7 bn while absolute NNPA was largely flat QoQ at ` 9.0 bn. Even going ahead, we expect asset quality to remain stable owing to strong credit monitoring mechanism and well-diversified credit book. We are factoring in GNPA ratio of 1% and NNPA ratio of 0.3% by FY16E.

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