HDFC Bank Rejects Rs 1 Tn Corporate Lending Opportunity Due To Pricing: Report
HDFC Bank has reportedly forfeited a corporate lending opportunity worth Rs 1 trillion due to unattractive pricing, according to a report by Motilal Oswal, a brokerage house. This information was gathered following interactions with HDFC Bank's top management, including MD and CEO Sashidhar Jagdishan.
Out of this total amount, the bank rejected proposals worth Rs 30,000 crore in the first quarter of FY24 alone, as stated by the brokerage.
This aligns with the bank's Q1FY24 commentary, where CFO Srinivasan Vaidyanathan emphasised that although the bank desires to maintain relationships with top corporates, it has experienced pricing disruptions in recent quarters. He mentioned that the bank would not compete solely on pricing to secure these loans and relationships, indicating a willingness to prioritise value over bargain prices.
As of 30 June, the bank's wholesale loan book grew by 11 per cent year-on-year, reaching Rs 4.04 trillion, although it contracted by 1-2 per cent sequentially, according to the CFO. Meanwhile, retail advances increased by 18 per cent year-on-year and 4 per cent sequentially, reaching Rs 6.57 trillion by the end of June. Consequently, the share of retail loans in the bank's overall advances increased to 47 per cent compared to 44 per cent a year earlier, while that of wholesale loans decreased from 56 per cent to 53 per cent during the same period.
Motilal Oswal predicts that the merged entity of HDFC Bank will achieve a 12 per cent year-on-year loan growth between July and March, with credit growth rebounding to 17 per cent between FY24 and FY26. HDFC Bank completed its merger with Housing Development Finance Corp (HDFC) on 1 July.
The report suggests that HDFC Bank will maintain a strong focus on mobilising deposits, a key funding source. Consequently, the bank plans to continue its aggressive branch expansion, targeting a run rate of 1,400-1,500 branches in FY24, aiming to reach a total of 13,000-14,000 branches to sustain its growth trajectory over the medium term. It's worth noting that HDFC Bank also gained an additional 500 branches through its merger with HDFC, which will be scaled up over time.
According to the brokerage, HDFC Bank's management has indicated that over 90 per cent of new branches are meeting internal business projections. Additionally, HDFC Bank has fortified its balance sheet with higher general and contingent provisions of Rs 3,900 crore and NPA provisions of Rs 3,800 crore as part of the merger with HDFC to ensure the strength of the combined entity's balance sheet.
The report clarified that the additional provisions made by HDFC Bank are not indicative of a change in their assessment of the underlying asset quality. These provisions are different from the previous provisioning method, which was based on an estimated loss approach according to INDAS accounting standards. The report also noted that there will continue to be an "unwinding" in HDFC's wholesale loan book in the near future.
Motilal Oswal has reiterated its "BUY" rating for the bank's stock, maintaining a target price of Rs 1,950 per share. On Tuesday, the bank's shares closed 0.39 per cent higher at Rs 1,537.65 per share on the BSE.
