HDFC Bank Dips After Results: What’s Disappointing Investors
Shares of HDFC Bank (NS:HDBK) were dipping slightly on Monday morning after India’s largest lender posted robust fourth-quarter results but left many confused by huge provisions for bad loans.
Price Action: HDFC Bank reported a standalone net profit of ₹16,511.85 crore for Q4, marking a 37% increase compared with ₹12,047.5 crore a year ago. The figure beat analyst estimates of ₹15,663 crore.
The standalone net interest income (NII), a key indicator of the bank’s core profitability, stood at ₹29,077 crore, growing 24.5% from the previous year’s ₹23,351.8 crore. This was mostly in line with analyst estimates of ₹29,010 crore.
HDFC Bank
Meanwhile, the lender’s core net interest margin stood at 3.44% on total assets, and 3.63% based on interest-earning assets.
HDFC Bank’s board also recommended a dividend of ₹19.5 per share compared with ₹19 per share declared last year.
The Sticking Point: However, much of the debate around the lender’s results were centred around the bank’s floating provisions of ₹10,900 crore, which many investors saw as unnecessary and likely squeezed the bank’s margins.
While year-ago figures are not comparable for the whole business given the merger between HDFC and HDFC Bank, the group’s consolidated net profit rose only 1.6% to ₹18,012.87 crore from the preceding third quarter.
Price Action: Shares of HDFC Bank were down 0.87% at ₹1,518.05 near the start of trade on Monday.
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HDFC Bank
Investors seem to be reacting negatively to HDFC Bank’s recent results, even though they reported a profit increase [2]. Here’s a possible explanation for the stock price dip:
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Mixed Signals: The bank’s profit figures met analyst expectations, but some key metrics fell short [2, 6]. For instance:
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Net Interest Income (NII):Â This figure, which reflects a bank’s core profitability from interest earned on loans minus interest paid on deposits, was lower than anticipated [2, 6].
- Provisions: The bank significantly increased provisions for bad loans, which might indicate concerns about rising defaults [2, 6]
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Profitability Concerns: While the bank is profitable, these metrics suggest a potential slowdown in core earnings growth, which could disappoint investors looking for strong returns [2, 6].
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Post-Merger Integration: HDFC Bank merged with HDFC Limited in July 2023. Investors might be cautious as the bank integrates the two entities, which could lead to unforeseen challenges [6].