IndusInd, HDFC Bank surge up to 21% post Q4 biz update amid Covid-19 woes

The growth comes amid the coronavirus pandemic that has cast shadow on the banking sectors' performance.
Shares of HDFC Bank and IndusInd Bank zoomed as much as 21 per cent on the BSE on Tuesday after the banks informed their respective investors about their March quarter performance. While HDFC Bank reported a 21 per cent year-on-year jump in the net advances, IndusInd Bank reported a 13 per cent YoY growth. This comes amid the coronavirus pandemic that has cast shadow on the banking sectors' performance.

HDFC Bank reported a 6.3 per cent sequential growth in net advances, to Rs 9,93,000 crore, while deposits rose 7.4 per cent over the previous quarter to Rs 11,46,500 crore. On a yearly basis, the advances and deposits logged a growth of 21 per cent and 24 per cent, respectively. While the growth in advances hit a 4-quarter high, deposits registered an over 20-per cent growth for the third consecutive quarter.

"The Bank’s CASA ratio stood at around 42 per cent as of March 31, 2020, as compared to 42.4 per cent as of March 31, 2019 and 39.5 per cent as of December 31, 2019," the bank said in a statement.

On the otherhand, IndusInd Bank's net advances came in at Rs 1,86,393 crore at the end of March quarter, while deposits stood at Rs 1,94,868 crore. Meanwhile, the bank's retail deposits and deposits from small business customers (in accordance with the LCR Regulations) jumped 34 per cent YoY to Rs 46,651 crore in the recently concluded quarter. The CASA ratio came in  at 43.1 per cent.

Analysts at Kotak Institutional Equities expect banks to report healthy earnings due to the Reserve Bank of India's loan moratorium. 

"With a moratorium on loan repayment, we expect banks to show healthy earnings growth primarily due to lower provisions, lower tax rate (DTA costs were adjusted for private banks in 2QFY20 while we await the status of the same for a few public banks) and higher treasury income," they wrote in an earnings preview note.

They, however, added that the core performance could be weak as loan growth has slowed to ~6% yoy, which would put pressure on revenue growth, and we expect the decelerating trends to be more visible in retail-oriented loan books.

The analysts expect HDFC Bank to report a net interest income (NII) of Rs 15,005.1 crore at the end of Q4FY20, while the net profit is pegged at Rs 7,124.7 crore. The Mumbai-headquartered bank is scheduled to report its Q4FY20 earnings on April 18, 2020. 

"Retail loan growth slowdown is on account of weak volume growth in auto though the share of unsecured portfolio would continue to remain high (lockdown impact negligible)... We expect gross NPL ratio (1.5% of loans) which is a marginal increase QoQ . Growth in credit costs, especially from rural loans, would be a key monitorable. The bank is likely to build a contingent provisions for any slippage due to lockdown," they said. 

Meawhile, those at Motilal Oswal Financial Services Ltd (MOFSL) believe a strong liability franchise would support margins, while higher liquidity levels would enable the bank to ride the current crisis. 

"HDFC Bank's business growth remains robust in a tough macro environment, where economic activity is being impacted due to the Covid-19 outbreak, which kept lending activity muted in the last few days of Mar’20. We expect overall loan growth over FY21 to be affected by the ongoing lockdown. Asset quality is also likely to be impacted, resulting in higher credit cost. However, provisioning buffers should limit the overall impact on earnings," they wrote in a recent note. They maintain 'buy' call on the stock with a target price of Rs 1,150.

As for IndusInd Bank, analysts at Kotal IE expect a weak performance on operating metrics. They expect net interest margin decline due to higher cost of funds (weak funding environment), along with weaker performance on fee income growth. The NII is seen at Rs 2,899.1 crore. The net profit, however, is seen plunging 97 per cent QoQ to just Rs 44.6 crore. 

"IIB’s stock price has corrected steeply recently owing to concerns regarding asset quality and strength of funding franchise as the bank witnessed a sharp rundown in its deposits balance. The Covid-19 outbreak has further impacted growth/asset quality prospects in select business segments. We, thus, estimate credit cost to remain elevated over the next few quarters while business growth should moderate," wrote analysts at MOFSL in a post Q4 update report. They maintain 'Buy' with an unchanged target price of Rs 800. 

At 11:01 am, HDFC Bank was trading 5 per cent higher at Rs 854 apiece, while IndusInd Bank was at Rs 362, up 15.5 per cent. In comparison, the S&P BSE Sensex was at 28,855 level, up 4.5 per cent.

Nifty Bank and Nifty Private Bank index, too, were trading 5 per cent higher each, lifted by the two counters. IndusInd Bank, Axis Bank, HDFC Bank, ICICI Bank, State Bank of India and Federal Bank were the top performing contituents in the indices, up between 2 and 16 per cent. 


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