“So yes, around 90% LDR in FY27 could be possible, although it seems difficult because if credit growth is 200 basis points higher than system growth, then that means credit growth for FY27 is pegged at around 15 odd percent. Deposit growth will have to be at least 400 to 500 basis points higher than credit growth. Obviously, the bank has levers to accelerate deposit mobilization, but our estimate suggests that for HDFC’s LDR would stabilize at somewhere between 91 and 92 percent,” she said.She added that achieving aggressive deposit growth would largely depend on CASA’s mobilization and the maturity of the bank’s branch network.
“Somewhat difficult, yes, but if we assume about 18% growth, that would come from aggressive CASA mobilization using their branch network, because management has emphasized that branches that are more than five years old generally have the ability to accumulate roughly three times as many deposits. So they have a fair share going into the five-year-plus vintage so they can leverage that branch network and also deepen relationships,” Vaidya explains.
While deposit growth could be helped by the bank’s strong mortgage and credit card franchises, returning to pre-merger LDR levels could be difficult, she said.
“So by taking advantage of that, the bank could accelerate it, but yes, in the current scenario, getting back to pre-merger LDR levels seems a bit difficult. So pre-merger, pre-merger levels would be somewhere between 87 and 88; early 90% is what we are looking at for FY27,” she said. On the profitability front, Vaidya answered questions on HDFC Bank’s return on assets (ROA) and the impact of one-off adjustments during the quarter.
“Yes, so the one-time profit of 8 billion that they had was a bit of a surprise. It was on the higher side, and management has also made it clear that these are on the higher side in terms of estimates, given the data available,” she said.
Excluding these adjustments, she noted that credit costs remained favorable.
“Excluding the one-time provision of Rs 5 billion that the bank had to make for the PSL compliant farm loans, credit costs were more or less stable because barring the seasonal slippages in agriculture, they were quite under control and it was a favorable environment for credit costs, especially for HDFC Bank. So 1.8 to 1.9 is something that the bank has achieved,” Vaidya added, while noting that the quarter still surprised on the upside with margins improving with 8 basis points.
As for ICICI Bank, it said the profit loss was largely due to a reclassification-related provision.
“Yes, so this was one of the key reasons why earnings estimates for ICICI Bank missed big time. However, if these loans are classified as PSL loans, there would definitely be a rollback in provisioning, which should then contribute to better credit costs,” she said.
She emphasized that underlying trends in asset quality remained stable.
“But other than that, the cost of credit has remained largely stable. We have not seen any problem. It has been in the range of 35 to 36 basis points, and that is stable cost of credit that the bank has delivered,” Vaidya noted.
On the reappointment of ICICI Bank MD and CEO Sandeep Bakhshi, she said the move removes a major overhang for the stock.
“So yes, the term extension for the current MD was certainly an overhang for the stock. Now, with the reappointment for two years until October 28, this will certainly read as positive for the bank and that should help stock performance as well,” she said, adding that healthy earnings growth should further support valuations.
Despite HDFC Bank currently lagging ICICI Bank in terms of ROA and NIMs, Vaidya expects the valuation gap between the two to narrow over time.
“Yes, certainly for HDFC, we have seen that there is a gap in valuation, but we expect some narrowing of the valuation gap for HDFC and ICICI. What works for HDFC is that we should see better margin improvement than ICICI for HDFC Bank, and that should be led by an improving CASA mix, accelerating growth and also lower financing costs,” she said.
She also ruled out major concerns about asset quality for both lenders.
Looking at near-term stock performance, Vaidya said recent corrections could provide an entry opportunity into HDFC Bank.
“So, we have seen the shares correcting over the last one month, especially after the preliminary numbers came out. So, we believe this is a good price to go into HDFC Bank and since it has been a largely inline set of numbers and there are no concerns on any of the key parameters for the bank, we expect to see a positive impact on the shares in today’s trading session,” she said.
For ICICI Bank, she expects a more muted response.
“When it comes to ICICI, credit costs have indeed delivered a negative surprise. As you said, the MD reappointment is positive, so a flat to slightly positive outcome could be seen in today’s trading session for ICICI,” she added.
Among mid-market lenders, Vaidya singled out Federal Bank as a standout.
“For Federal, a very good set of numbers, actually a great performance this quarter. The margin surprises positively. Overall growth is coming back after the strategy refocus. Most of the key parameters are falling into place as management envisioned,” she said.
She expects steady improvement in Federal Bank’s ROA in the coming years.
“So from 1.1% in FY26, we see a sharp improvement to 1.4% in FY28, largely driven by margin improvements and a steady decline in overall operating expense ratios,” she said, reiterating her positive view on the stock.
Summarizing the broader earnings season, Vaidya said mid-sized and smaller banks have outperformed larger banks in terms of margins, largely in line with expectations.
“Among the larger banks, we prefer Kotak and HDFC. Among the mid-market banks, we like Federal, and among the small finance banks, we remain positive on Ujjivan,” she concluded.
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