HDFC Bank had to abandon loan opportunities worth Rs 100 crore in wholesale business, including Rs 30,000 crore in Q1 FY24, due to unattractive pricing due to increased competition, including from PSU banks.
Overall, HDFC Bank expects loan growth to remain healthy and aims to double its balance sheet in four years, HDFC Bank said at a top management meeting with Motilal Oswal Securities.
Liquidity accumulation
“The recent liquidity build-up (through HDFC Ltd balance sheet) has positioned the bank well to pursue growth in FY24 without worrying too much on the funding front. The brokerage said in a report that the growth in the mortgage business Good momentum and improving cross-sales will drive growth in retail assets, while steady traction from MSMEs will help it sustain overall broad-based growth at 12% for the remainder of FY24. Expected FY2024-26 Loan compound annual growth rate will return to 17%.
The private sector lender plans to open 1,400-1,500 branches in fiscal 2024, taking the total number of branches to 13,000-14,000. Apart from this, HDFC’s 500 branches will be expanded during the year.
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More than 90% of the new branches are on track to meet business targets and deposit growth will remain a focus area for the bank as the main source of funding, while growth in affordable housing and infrastructure bonds will be limited.
On the rise in NPAs in HDFC’s wholesale portfolio, HDFC Bank said it expects a strong recovery in the coming years even as the wholesale book continues to unwind in the near term. As of July 2023, the total NPA ratio of HDFC’s non-personal portfolio was 6.7%.
The bank also raised general and contingent provisions by Rs 3,900 crore and specific NPA provisions by Rs 3,800 crore to maintain the strength of the consolidated balance sheet due to differences with HDFC provisions.
priority sector loans
HDFC Bank said it may not be easy to achieve priority sector lending (PSL) targets in specific segments such as small and marginal farmers, but it is fully capable of complying with the overall PSL requirements and achieving a 2% RoA in the medium term.
“While the combined entity is expected to start its journey on a softer note, we expect operating results to gradually recover from the second half of fiscal 2024. We expect margins to recover to 3.8% by fiscal 2026 and Cost ratios are expected to improve, which will bring PPoP (operating profit before provisions) CAGR to around 21% from FY23 to FY26, resulting in RoA/RoE of 2/17% by FY2026 year (back to pre-merger levels),” the report said.
