HDFC Bank Stock Analysis | Best Banking Stock in India

HDFC Bank Q3 FY2019-20 Financial Highlights

Introduction

In this article, we are going to see HDFC Bank Q3 FY20 results update. Lower tax rate and steady operating performance lead to 33% rise YoY in Net Profit of HDFC Bank for the October-December quarter.

HDFC Bank Q3 FY20 Results Update

Q3 FY2019-20 Results Analysis

• Net Interest Income (NII) is increased by 12.7% YoY driven by :
  • Growth in advances of 19.9% and deposit growth of 25.2%
  • Stable Net Interest Margin of 4.2% for Q3 FY20
• Non-Interest Income growth is 32% YoY as well as 19% QoQ mainly because of :
  • Rise in Fees & Commission Income (24% YoY & 12% QoQ)
  • Miscellaneous Income including Recoveries & Dividends seen robust growth of 134% YoY & 87% QoQ
  • Excellent Gains on Revaluation / Sale of investments in Q3 FY20
• Operating profit is increased by almost 20.1% YoY on account of :
  • Increase in Balance sheet size by 13.2% YoY and 4.7% QoQ
  • Rise in efficiency of bank (Improved cost to income ratio)
• Provisions and contingencies for the quarter Q3 FY20, were Rs.3,043.5 Cr with a YoY growth of 38% as against Rs.2,211.5 Cr for Q3 FY19.
  • The key components of provisions are specific provisions, general provisions and floating provisions.
  • General provisions include additional provisions for standard advances to the NBFC / HFC sector.
• Net profit rise of almost 32.8% YoY and 16.9% QoQ is mainly due to
  • Corporate tax rate cut : Effective tax rate has come down to 25% in Q3 FY20 from 35% Q3 FY19 and 29% Q2 FY20
  • Strong Operating Profit growth 20.1% YoY and 10.7% QoQ

Q3 FY20 Balance sheet Summary

Deterioration in the Asset Quality

• During Q3 FY20, Asset quality was deteriorated slightly and slippages were elevated.
• Gross NPA increased to 1.42% in Dec-19 quarter from 1.38% in last quarter as well as Dec quarter previous year. While Net NPA is increased to 0.48% in Q3 FY20 from 0.42% in Q2 FY20 and Q3 FY19.
• Provision Coverage Ratio (PCR) has also come down to 66.7% in Q3 FY20 from 69.7% in Q2 FY20 and Q3 FY19.

CASA Ratio

• CASA Ratio reduced to 39.5% from 40.7% last year and improved slightly from 39.2% last quarter. It is because :
  • Total deposits have grown by 25.2% YoY and 4.5% QoQ, the contribution of CASA deposits in the total deposits was slightly with the lower growth rate.
  • The share of Time deposits is higher and it has increased at a very good growth rate of 27.7% YoY, higher than the growth rate of even total deposits.
  • It indicates total deposits are increased mainly on account of Time deposits.

Capital Adequacy Ratio (CAR)

• HDFC Bank’s total Capital Adequacy Ratio (CAR) as per Basel III guidelines was at 18.5% as on December 31, 2019 from 17.5% as on September 30, 2019. CAR is well above the regulatory requirement level given by RBI.
• CAR has improved to 18.5% in Q3 FY20 from 17.3% in Q3 FY19.

Net Interest Margin (NIM)

• Net Interest Margin (NIM) and the asset growth, both drives the Net Interest income of the bank.
• NIM for the quarter Q3 FY20 remained stable at 4.2% same in Q2 FY20, but reduced from 4.3% in Q3 FY19.

Cost to Income Ratio

• For Q3 FY20, the Cost to Income Ratio improved to 37.9% from 38.4% in Q3 FY19. While the ratio was 38.8% in Q2 FY20.
• Cost to income ratio of any bank tells how much cost is incurred to generate operating income of Rs.100 for the bank. The improvement in the cost to income ratio of HDFC bank in Q3 FY20 indicates :
  1. The rise in operational efficiency of the bank
  2. Increased profitability as compared to Q3 FY19 & Q2 FY20