HDFC Bank Q4 FY20 – Key Updates

HDFC Bank Q4 FY20 Financial Highlights

Introduction

HDFC Bank has reported a strong performance in Q4 FY20 with Net Profit growth of 18% YoY despite of weak economic activities provoked by COVID-19 pandemic. Bank has delivered a healthy performance over almost every parameter – Loan growth, CASA deposits growth, Net Interest Margins and asset quality. Lets analyse the key Financial Highlights of HDFC Bank for Q4 FY20 in this article.

Earlier this month, the Bank has already presented Q4 FY20 key financial updates, where it reported advances and deposits YoY growth of 21% and 24% respectively.

HDFC Bank Q4 FY20 – Key Updates

Q4 FY2019-20 Results Analysis

• Net Interest Income is increased by 16.2% YoY driven by :
  • Growth in advances of 21.3% and deposit growth of 24.3%
  • Stable Net Interest Margin of 4.3% for Q3 FY20 and robust growth in CASA deposit 24% YoY and 15% QoQ
• Non-Interest Income growth is 24% YoY mainly because of :
  • Rise in Fees & Commission Income (14.6% YoY)
  • Miscellaneous Income including Recoveries & Dividends seen growth of 33% YoY
  • Excellent Gains on Revaluation / Sale of investments by 147% YoY
• Pre-provisioning Operating profit is increased by almost 19.5% YoY on account of :
  • Robust growth in Balance sheet size by 23% YoY and 9.7% QoQ
  • Fall in Interest Expenses QoQ
• Net Profit
  • Bank’s Net profit rise of 17.7% YoY is mainly due to
    • Corporate tax rate cut :  Effective tax rate has came down to 25% in Q4 FY20 from 35% Q4 FY19
    • Strong Pre-provisioning Operating Profit growth 19.5% YoY, But Provisions are doubled YoY
  • Net Profit is declined by 6.6% QoQ mainly due to COVID-19 implications :
    • EMI Moratorium of 3-months on Loans from March 1, 2020 : Impacted the Interest income growth in Mar-20 quarter YoY as well as QoQ
    • Almost 24% Rise in Provisions QoQ against potential impact of COVID-19 due to standstill economic activities
    • 10% fall QoQ in Non-interest income (declined fees & commission income by 7.2% QoQ) amid nationwide Coronavirus lockdown

Q4 FY20 Balance sheet Summary

• Bank’s has delivered a robust growth in its balance sheet size QoQ (10%) as well as YoY (24%). A strong balance sheet will remain a key strength of the bank despite of COVID-19 implications.
• The Bank’s advances aggregated to approximately Rs.9.93 Lakh Cr as of March 31, 2020, a growth of around 21.3% as compared to Rs.8,19 Lakh Cr as of March 31, 2019 (Rs.9.36 Lakh Cr as of December 31, 2019).
• Whereas, Bank’s deposits aggregated to approximately Rs.11.46 Lakh Cr as of March 31, 2020, a growth of around 24.3% as compared to Rs.9.23 Lakh Cr as of March 31, 2019 (Rs.10.67 Lakh Cr as of December 31, 2019).
• CASA deposits piled at Rs.4.81 Lakh Cr in Q4 FY20 from Rs.3.91 Lakh Cr in Q4 FY19, thus grew by 24% YoY.
• CASA ratio stood at around 42.2% as of March 31, 2020, as compared to 42.4% as of March 31, 2019 and 39.5% as of December 31, 2019.

HDFC Bank – Deposits & Advances YoY Trend

• Bank’s deposits are growing at a healthy growth rate CAGR of 19.6% since FY2015, when deposits are Rs.4.51 Lakh Cr, to almost Rs.11.47 Lakh Cr for FY2020.
• Whereas, bank’s advances have also shown a robust growth, CAGR of 22.4% since FY2015 to FY2020. Bank’s advances have increased to Rs.9.93 Lakh Cr in FY2020 from Rs.3.65 Lakh Cr in FY2015.

Q4 FY2019-20 Key Ratios

Improved Asset Quality

• Bank’s asset quality improved in the March quarter, with the Gross NPA (ie. Gross bad loan ratio or the percentage of bad loans to total advances) declining 10 bps to 1.26% from 1.36% last year (Mar-2019) and 1.42% last quarter (Dec-2019)
• While Net NPA ratio was down 3 bps to 0.36% in Q4 FY20 from 0.39% in Q4 FY19 and 0.48% in Q3 FY20.
• As on March 2020, Bank held provisions against the potential impact of COVID-19 and the same are in excess of RBI prescribed norms. As a result, gross NPA and net NPA ratios were lower by 10 bps and 6 bps YoY respectively.
• With almost 100% YoY and 25% QoQ growth in the provisions, the Provision Coverage Ratio (PCR) of the bank has improved to 72% in Q4 FY20 from 66.7% in Q3 FY20 and from 71% in Q4 FY19.

CASA Ratio

• CASA Ratio slightly declined to 42.2% from 40.7% last year, however there is a significant improvement in CASA ratio QoQ from 39.5% last quarter.
• From the above graph, we can see that bank’s CASA Ratio is improving consistently after bottoming out in Q2 FY20.
• There is a substantial rise in low cost CASA deposits of the bank – 24% YoY and 15% QoQ.
• It will support lowering of cost of funds due to lower interest expenses and thus, will improve Net Interest Margin (NIM) of the bank

Capital Adequacy Ratio (CAR)

• HDFC Bank’s total Capital Adequacy Ratio (CAR) as per Basel III guidelines was at 18.5% as on March 31, 2020, remained stable from 17.1% as on March 31, 2020. It indicates the significant improvement in the capital positioning of the bank year on year.
• CAR is well above the regulatory requirement level given by RBI.
• CAR has remained stable to 18.5% in Q4 FY20 as compared with last quarter – Q3 FY20.

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 Q4 FY20 improved slightly to 4.3% from 4.2% in Q3 FY20, but reduced from 4.4% in Q4 FY19.

Cost to Income Ratio

• For Q4 FY20, the Cost to Income Ratio improved to 39% from 39.6% in Q4 FY19. While the ratio was 37.9% in Q3 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 YoY improvement in the cost to income ratio of HDFC bank in Q4 FY20 indicates :
  1. The rise in operational efficiency of the bank
  2. Increased profitability as compared to Q4 FY19