HDFC Bank, India’s largest private lender, is expected to face challenges in its loan growth for the July-September 2024 quarter. According to global brokerage Macquarie, the bank’s loan growth may dip below 10% year-on-year during this period. This comes as an important development since it marks the first time that HDFC Bank’s performance will be measured on an annual basis after its merger with HDFC Ltd.
Why is Loan Growth Expected to Fall?
The predicted slowdown is largely attributed to two major reasons. First, the base effect is in play, which impacts growth comparisons when previous year figures were significantly high. Second, reports suggest that HDFC Bank is looking to sell loans worth ₹60,000 crore to ₹70,000 crore. This large-scale asset sale is likely to weigh on its overall loan book and cause the slowdown in growth.
Additionally, the bank is expected to focus on reducing its loan-to-deposit ratio (LDR) as it tries to manage liquidity and margins more effectively. Balancing the LDR could limit the bank’s loan disbursements, further impacting its growth rate.
How Will Margins and Earnings Be Affected?
Despite the expected dip in loan growth, Macquarie maintains an optimistic outlook. The brokerage has kept an “outperform” rating on the stock and set a price target of ₹1,900, up from its current price of ₹1,780.80 on the BSE. Macquarie believes that HDFC Bank’s net interest margins (NIMs) could see a marginal increase of 0.05% this quarter, while many other banks may witness flat or declining NIMs.
However, there are concerns about earnings. Some analysts, including Nomura, point out that the asset sales and high LDR could put pressure on HDFC Bank’s earnings per share (EPS) and return on equity (RoE) in the medium term. Nomura has already reduced its EPS estimates by 2% for FY2026-27, citing these pressures.
What Are Other Analysts Saying?
Interestingly, none of the 47 analysts tracking HDFC Bank have issued a “sell” recommendation. Out of these, 38 have a “buy” rating, while 9 suggest a “hold.” The overall sentiment remains largely positive, even as the bank navigates through these short-term challenges.
Key Stock Movements
In terms of stock performance, HDFC Bank’s shares saw a slight uptick of 0.11% on Thursday, September 26, trading at ₹1,780.80. Intra-day, the stock touched ₹1,782.75, nearing its all-time high of ₹1,791.90 reached on July 3, 2024. Earlier this year, on February 14, the stock had dipped to a one-year low of ₹1,363.45.
