What can happen in a day? A lot if you are a HDFC Bank shareholder. On Wednesday, HDFC Bank shares plunged over 8 per cent to close at Rs 1,536.90. The slide was the most HDFC Bank has seen in almost four years and it is falling further. The stock hit a low of Rs 1,480 on Thursday intra-day, close to its 52-week low of Rs 1,460.55, and despite some pullback still ended 3 per cent lower at Rs 1,491 on the BSE.
The country's largest private sector lender had reported a strong 34 per cent rise in its net profit for the October-December quarter. So, what is the reason behind investors disappointment that has led to the stock sliding 11 per cent in just two trading sessions?
Analysts attribute several reasons. The bank's provisions and contingencies in the December quarter at Rs 4,220 crore were much higher than the Rs 2,810 crore in the year ago quarter. Analysts were also disappointed with the bank's lower liquidity coverage ratio (LCR) and margins.
HDFC Bank's net interest margins were flat quarter-on-quarter at 3.4 per cent, despite the withdrawal of the incremental cash reserve ratio (ICRR) by the Reserve Bank of India, which had impacted margins in the September quarter. Deposit growth continuing to lag credit growth is also a concern, say analysts.
"HDFC Bank saw deposit growth (2 per cent quarter-on-quarter) lag loan growth (5 per cent quarter-on-quarter), which is concerning as the C-D (credit-deposit) ratio has now reached a sector high-level of 110 per cent, versus 107 per cent in second quarter, making deposits a significant constraint for growth going ahead," said Nomura Securities analysts Param Subramanian and Ankit Bihani.
The Nomura analysts cut the bank's deposit growth outlook to 17 per cent compounded rate over financial years 2024-26 from 20 per cent earlier, citing that the bank has scaled down its branch expansion plans, which are key for retail deposit mobilisation. The analysts have also lowered the loan growth forecast for HDFC Bank to 15 per cent from 17 per cent and net interest margin (NIM) estimates by 15 basis points.
"For any broader pickup in NIM going ahead, HDFC Bank needs deposit growth to significantly outpace loan growth (in order to reduce wholesale borrowings in funding mix), which is not the current trend and will stay a challenge, as system liquidity remains tight and deposit mobilisation stays tough," Subramanian and Bihani said.
As of December 31, HDFC Bank's total deposits were at Rs 22.14 lakh crore, up near 28 per cent from a year ago. Gross advances, meanwhile, were at Rs 24.69 lakh crore, up 62 per cent year-on-year.
The lower LCR, C-D ratio bottleneck and slower deposit growth may squeeze NIMs going forward, and the street is concerned about it, said Ajit Kabi, research analyst at LKP Securities.
"Tight liquidity condition is creating challenge for the bank to mobilise deposit. The ask rate for deposit outstrip the current run rate, which may transpire into moderation in credit growth. Decline in liquidity coverage and rising LDR (loan to deposit ratio), limits the scope for balance sheet manoeuvrability to defend margin," said Manish Agarwalla and Sujal Kumar of Phillip Capital.
However, the analysts remain positive over the medium to long term prospects of HDFC Bank and in fact raised their target price on the stock to Rs 1,920 from Rs 1,880 earlier. The Nomura analysts on the other hand reduced their target price on HDFC Bank to Rs 1,625 from Rs 1,750.
Rohan Mandora and Lalit Deo of Equirus Securities stated deposit growth remains the key monitorable in the near-term.
"Despite an 18 per cent incremental deposit market share, the bank will need to generate significant retail deposits to support loan growth; failing to do so would either hurt NIMs and/or loan growth," said the Equirus analysts.
They have cut HDFC Bank's loan growth estimates for financial year 2025 and 2026 by 200 bps each to 16 per cent and 15 per cent respectively. Profit after tax estimates for 2024-25 have also been cut by 4 per cent, by the analysts. They also cut their target price on HDFC Bank to Rs 1,900 from Rs 2,000.
Apart from HDFC Bank, Kotak Mahindra Bank, IndusInd Bank and AU Small Finance Bank also closed in the red on Thursday. But several other banking shares like ICICI Bank, Axis Bank, IDFC First Bank and State Bank of India, which had been hit on Wednesday, closed higher on Thursday.