HDFC Bank will not aggressively hike interest rates to attract new deposits as it has decided to keep the focus on profitability over growth in the medium term.

The country’s largest private lender has to ensure sustainability of its retail deposit franchise even as it goes through a transition phase after the merger with parent HDFC Ltd.  The credit-to-deposit (CD) ratio is high and needs to come down.

HDFC Bank managing director and CEO Sashidhar Jagdishan, however, has made it clear that the country’s largest private lender will not use pricing to crank up the pace of deposit growth.  He has, though, admitted that retail deposits is key for the bank and investments in distribution, people and technology will continue to be made to push this forward. 

HDFC Bank’s market value has fallen below the Rs 12-lakh-crore mark, compared to the Rs 12.6 lakh crore it enjoyed in July 2023 when the merged entity shares were traded for the first time.

"Our focus over the medium to long term will be on improvement of  profitability matrix defined by return on assets (RoA) and earnings per share. The most important priority will be to sustain the deposit franchise, particularly garnering retail deposits. That's not going to be achieved by shortcuts amid an intense competitive environment. Further, the bank will ensure that it will be on a par with key players in the market and not over price ourselves,” said Jagdishan.

During a conference call with analysts, Jagdishan said that the key to sustainable momentum will be enhanced customer engagement and an elevated service-first culture. “The intensity of this will be heightened,” he added.

On Saturday, HDFC Bank reported a 37% year-on-year rise in net profit to Rs 16,511.85 crore for the fiscal fourth-quarter ended 31 March 2024. This came on the back of higher net interest income and stake sale in the education finance arm HDFC Credila.

On a sequential basis, however, HDFC Bank’s net profit grew just 0.85% from Rs 16,372.54 crore in the October-December 2023 period. Higher provisions and lower growth in net interest income impacted the bank on a sequential basis.

Core net interest income (interest earned less interest expended) grew 2% quarter-on-quarter to Rs 29,077 crore, from Rs 28,470 crore in the preceding three months.

Other income rose 63% sequentially to Rs 18,166 crore, buoyed by a one-time gain of Rs 7,341.4 crore from the sale of HDFC Credila to BPA EQT and Chrys Capital. Net interest margin (NIM) stood flat at 3.4%.

The bank’s gross non-performing assets (NPA) ratio remained stable at 1.24% as on March-end, compared with 1.3% a quarter ago.

Net NPA increased marginally to 0.33% from 0.31% in the previous quarter.

Provisions rose three-fold to Rs 13,500 crore at the end of March 2024, including floating provisions of Rs 10,900 crore to cover for potential losses in future. 

The bank also saw a reversal of provisioning against its alternate investment fund (AIF) amounting to Rs 185 crore during the quarter. The bank had made AIF provisioning worth Rs 1,220 core in the third quarter.

"The bank has considered this as an opportune stage to enhance its floating provisions, which are not specific to any portfolio, but act as a countercyclical buffer for making the balance sheet more resilient, and these also qualify as tier 2 capital within the regulatory limits," the lender said in an official statement.

HDFC Bank’s loan book grew 1.6% sequentially to over Rs 25 trillion at the end of March 2024. 

Deposits grew 7.5% to Rs 23.8 trillion during the same period.

The bank saw a Rs 1.6 trillion increase in total deposits during the January-March quarter. Of this, Rs 1.3 trillion came from retail deposits. 

As of 31 March, 84% of the bank's total deposits are retail in nature. 

The bank's CD ratio reduced to 105% from 110% in the previous quarter. The ideal CD ratio is 80%-90%. 

Jagdishan said that CD ratio will remain muted as the bank will have to pay maturities on HDFC's bonds.

HDFC Bank also announced a dividend of Rs 19.5 per equity share of Rs 1 for the fiscal year ended 31 March 2024. 

The private lender received the board's nod to raise Rs 60,000 crore of tier 2 capital via bond instruments.