HDFC Bank Stock Analysis|Retail Loan Book Analysis and Guidance

4 min read
HDFC Bank is rapidly returning to its Pre-COVID growth rates. The management expects a 40-60% rise in retail loan disbursals for H2:FY21 (from Oct-20 to Mar-21) mainly driven by SME and Auto Loans. Let us analyse retail loan book of the bank and take a look at management's guidance for upcoming quarters.

Retail Loan Book Analysis of HDFC Bank

Introduction

In today’s blog we digress away from the conventional review on the financial analysis of stock. Instead, we’ll focus our attention towards the guidance from HDFC Bank‘s top management, draw inferences and do retail loan book analysis of HDFC Bank. This is strictly from a shareholders point of view and not a recommendation to buy the stock.

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HDFC Bank Retail Loan Book Analysis

Retail Lending to GDP Ratio

  • At present India’s Retail Lending to GDP Ratio stands at 18%, as against developed countries like US and UK this ratio ranges from 70%-80%.
  • With India being a fast growing country this exhibits the availability of a gigantic opportunity for high growth in retail loans in the coming years.
  • This augurs as a boost for colossal retail – oriented lending institutions such as  HDFC Bank, Kotak Bank, Bajaj Finance, etc.
  • Even players like IDFC Bank who focus heavily on retail lending are set to benefit from the same. However , we are still uncertain about how the pandemic will impact the wholesale lending segment of the bank.       
  • Demographic structure of India’s population is the reason for such an opportunity. The average age of an individual is ~28 years and 65% of the country’s population are below the age of 35.
  • The aspirational middle income group account for majority of the citizens of the nation and are expected to go on a spending spree in the coming years, in turn utilizing the loan and financing facilities offered by big banks.

Retail Loan Book

  • As on September 2020, HDFC Banks has a Retail Loan Book of Rs. 5 Lakh Crore of which retail makes up 46.7% and Wholesale contributes to 53.3% of the Retail Loan Book.       
HDFC bank Sept'20 Retail Loan Book
Retail Loan Book of HDFC Bank – Sept’20
  • The bank’s Retail Loan book is well diversified across 11 sectors. Vehicle Loans, Personal Loans and Auto Loans responsible for 25%, 23% and 13.09% respectively.
  • Mr. Arvind Kapil, Country Head Retail Lending at HDFC Bank recently said in an interview that he expects a 40-60% rise in retail loan disbursal for the second half of FY21. This is because the economic recovery underway has brought business back to pre-Covid levels.
  • The above is in fact a genuinely positive commentary. The bank’s cost of funds have been consistently decreased over the previous quarters and therefore it’s relatively easier for the bank to raise money.
  • HDFC Bank has always, without fail delivered on their guidance in the past and are widely respected in the industry for sticking to their words. This is exactly what a shareholder should be on the lookout for.
  • Our economy is experiencing strong and sustainable demand traction from Semi-Urban and Rural Areas which is an outcome of 2 consecutive above normal monsoons in the previous years. These factors pose as a tailwind, promoting higher organic growth of HDFC Bank.
  • Below are the best performing sectors that are currently operating at a capacity utilization of more than 100%, back at Pre-Covid Levels. Some have even managed to surpass Pre-Covid. This also indicates a positive connotation for HDFC Bank.
Sectors with capacity utilization > 100%
Sectors with capacity utilization > 100% in FY21
  • HDFC Bank is all set to cater to the demands of these sectors in coming quarters.
HDFC Bank Auto Sector Loan Book
HDFC Bank Auto Loan Book
Auto sector loan book – HDFC Bank
  • HDFC Bank is also riding the purple patch and cashing in the benefits from the healthy revitalization of the Auto Sector. Their Total Vehicle Loan Book is Rs. 1.15 Lakh Crore, with Car Loans, Commercial Vehicle Loans and 2-Wheeler Loans contributing 68%, 23% and 9% respectively.
  • In the past few months, we have distinctly caught sight of the Automobile Sector rising from the ashes like a phoenix. This resurgence has happened on the back of robust demand and amplifying sales volume.
  • Increasing preference for personal mobility and lower dependence on shared mobility and public transport due to the pandemic have been key demand drivers for entry-level vehicles.
  • This provides a good opportunity to HDFC bank to register healthy growth in its Auto Loan Book

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