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HDFC Bank (HDFCB IN – Rs458 – BUY)
Mixed trends in credit demand
1. The management highlighted that the credit demand trends have been
mixed from different sectors.
2. Sectors where demand has held up are a) working capital- partly due to
high inflation, b) smaller capex (like brown-field), and c) mortgages
(especially non-metros).
Healthy demand for
working capital and
mortgages
3. Segments impacted most from a credit demand perspective are a) large
brown-field capex, b) green-field capex and c) infra projects. On the retail
side, demand for auto and CV/ CE loans has softened.
4. Sectors where credit demand has picked-up are mostly risky sectors such
as unsecured loans and SME; most banks are risk averse and not willing
to lend to these sectors, but HDFC Bank believes that there are profitable
lending opportunities in these segments.
5. Management expects sector credit growth to be 17-18% and expects
deposit growth for the sector to match credit growth.
Stable margins, but moderate fee growth
6. Management expects that the RBI to raise the policy rates by another
25bps in the next monetary policy review in order to contain inflationary
pressures.
RBI may raise policy rates
7. CASA growth is becoming a challenge as high interest rates are (1)
inducing conversion of savings deposits into term deposits and (2) forcing
corporate to hold lower current account balances.
8. HDFC Bank expects to maintain margins near current levels supported by
high CASA ratio and balanced ALM.
9. Slower credit offtake tends to impact fee growth also, but HDFC Bank is
better positioned due to higher share of transaction banking linked fees.
No significant stress on asset quality
10. Management highlighted that recent trends do not indicate potential of
sharp rise in stressed assets- hike in interest rates and slowdown in
economy have not yet impacted bank’s asset quality.
Strong asset quality and
high coverage levels
11. While there are pockets of risk in the infrastructure sector, HDFC Bank has
a lower exposure.
12. Bank also carries high coverage levels against NPLs (83% in Jun-11) and
has created additional contingent provisions which will help to keep credit
costs low even as slippages rise from current levels that are near cyclical
lows.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC Bank (HDFCB IN – Rs458 – BUY)
Mixed trends in credit demand
1. The management highlighted that the credit demand trends have been
mixed from different sectors.
2. Sectors where demand has held up are a) working capital- partly due to
high inflation, b) smaller capex (like brown-field), and c) mortgages
(especially non-metros).
Healthy demand for
working capital and
mortgages
3. Segments impacted most from a credit demand perspective are a) large
brown-field capex, b) green-field capex and c) infra projects. On the retail
side, demand for auto and CV/ CE loans has softened.
4. Sectors where credit demand has picked-up are mostly risky sectors such
as unsecured loans and SME; most banks are risk averse and not willing
to lend to these sectors, but HDFC Bank believes that there are profitable
lending opportunities in these segments.
5. Management expects sector credit growth to be 17-18% and expects
deposit growth for the sector to match credit growth.
Stable margins, but moderate fee growth
6. Management expects that the RBI to raise the policy rates by another
25bps in the next monetary policy review in order to contain inflationary
pressures.
RBI may raise policy rates
7. CASA growth is becoming a challenge as high interest rates are (1)
inducing conversion of savings deposits into term deposits and (2) forcing
corporate to hold lower current account balances.
8. HDFC Bank expects to maintain margins near current levels supported by
high CASA ratio and balanced ALM.
9. Slower credit offtake tends to impact fee growth also, but HDFC Bank is
better positioned due to higher share of transaction banking linked fees.
No significant stress on asset quality
10. Management highlighted that recent trends do not indicate potential of
sharp rise in stressed assets- hike in interest rates and slowdown in
economy have not yet impacted bank’s asset quality.
Strong asset quality and
high coverage levels
11. While there are pockets of risk in the infrastructure sector, HDFC Bank has
a lower exposure.
12. Bank also carries high coverage levels against NPLs (83% in Jun-11) and
has created additional contingent provisions which will help to keep credit
costs low even as slippages rise from current levels that are near cyclical
lows.
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