HDFC BANK – INDIA’S SHINING STAR

HDFC Bank is a publicly held banking company, the bank was incorporated in August 1994 in the name of ‘HDFC Bank Limited’, with its registered office in Mumbai, India. It is engaged in providing a range of banking and financial services including retail banking, wholesale banking and treasury operations. It is promoted by HDFC Ltd. which has 19.32% stake as on September 30, 2020. Currently, HDFC Bank Ltd. is the largest private sector bank in India.

Growth Walkthrough

HDFC Bank’s interest income has grown by 27 percent to Rs 18,311 crore from Rs 14,415 crore which was reported in the year-ago period. HDFC Bank reported a consolidated net profit of Rs 11,163 crore for the quarter ended September 30 (Q2FY23). The quarterly growth was 22 percent higher than the profit which was reported in the same quarter of the previous fiscal.

The growth is supported by a vigorous 24 percent loan growth and exquisite asset quality.

The bank’s standalone net profit has risen by 20 percent year-on-year (YoY) to Rs 10,606 crore while its net interest income (NII) has grown by 19 percent to Rs 21,021 crore vs Rs 17,684.4 crore which was reported in Q2FY22.

Domestic retail loans have surged by 22 percent whereas commercial and rural banking loans have spiked by a gain of 32 percent. Furthermore, the corporate and other wholesale loans have a rise of mere 2 percent.

Asset quality of the bank has significantly flourished with gross non-performing assets (GNPAs) reported at 1.23 percent, which was 1.28 percent in the same period of the previous year. Net non-performing assets (NNPAs) were at 0.33 percent of net advances as on September 30, 2022, as against 0.35 percent in Q1FY23.

Provisions and contingencies have dropped down to Rs 3,240 crore as against Rs 3,924 crore in the same quarter of the last fiscal year. The core net interest margin (NIM) is reported at 4.1 percent on total assets.

Total balance sheet size as of September 30, 2022, was at Rs 2,227,893 crore as compared to Rs 1,844,845 crore as of September 30, 2021 which is a hefty growth of 21 percent.

The bank’s total deposits have displayed a sturdy growth noted at Rs 1,673,408 crore as of September 30, 2022, which is an increase of 19 percent YoY. Current Account Savings Accounts (CASA) deposits have grown by 15 percent with savings account deposits at Rs 529,745 crore and current account deposits at Rs 229,951 crore.

Merger

The National Company Law Tribunal (NCLT) has given its affirmation for holding a shareholders’ meeting for obtaining approval for the proposed merger of HDFC with HDFC Bank.

The shareholder meeting shall be convened on November 25, 2022 for the purpose of considering and approving the Scheme of Amalgamation, HDFC reported in a regulatory filing.

HDFC Ltd has also received approval from the Securities and Exchange Board of India (Sebi) for transfer of HDFC Property Ventures Limited (HPVL), a wholly owned subsidiary, to HDFC Bank. Termed as the biggest transaction in India’s corporate history, HDFC Bank on April 4 agreed to take over the biggest domestic mortgage lender in a deal valued at about USD 40 billion, creating a financial services titan.

The deal has got in-principle approval from the stock exchanges, Reserve Bank of India (RBI), Sebi, Pension Fund Regulatory and Development Authority (PFRDA) and Competition Commission of India (CCI).

The proposed entity will have a combined asset base of around Rs 18 lakh crore. The merger is expected to be completed by the second or third quarter of FY24, subject to regulatory approvals.

Once the deal is effective, HDFC Bank will be 100 per cent owned by public shareholders, and existing shareholders of HDFC will own 41 per cent of the bank. Every HDFC shareholder will get 42 shares of HDFC Bank for every 25 shares held. Every HDFC shareholder will get 42 shares of HDFC Bank for every 25 shares held. Following the merger, the combined balance sheet will be Rs 17.87 lakh crore and the net worth will be Rs 3.3 lakh crore, as of the December 2021 balance sheet.

Post-merger HDFC Bank will be twice the size of ICICI Bank, which is the third-largest lender now.

Technical Analysis

HDFC BANK Weekly Candlestick Chart on Sharekhan’s TradeTiger

HDFC Bank faces stiff resistance in the distribution zone around its lifetime high of Rs 1725. The stock is attempting to make a breakout over this level. However, operators seem to be holding the stock below Rs 1700 on vigorous terms. Considering that HDFC Bank is bright star of India, the stock may have a breakout soon in the mid-term. Hence investors may accumulate HDFC Bank as a portfolio stock for long term growth.

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