Shares of HDFC Bank, riding on renewed optimism over the probable increase in its weightage within the MSCI, tanked by over 4% on Friday to close at INR 1,653.70 on the BSE. This was after the bank reported a sharp decline in the Current and Savings Account (CASA) ratio in its Q1 business update.
Soft Deposit Growth and CASA Ratio Decline
On a year-over-year accrual basis, the deposit growth for Q1 of the fiscal year was steady at 15.3%, whereas on a proforma basis, it stands higher than the previous fiscal year. The CASA- an essential measure of a bank’s current and savings accounts percentage – decreased by 5% over the last quarter; the CASA ratio dropped by roughly 190 bps QoQ to 36%.
The bank unveiled that, excluding the merger impact, its loan book and deposits grew 14.9 per cent YoY and 16.5 per cent YoY. However, Nomura said that such a growth trajectory is seasonally soft for HDFC Bank in Q1, considering, on average, 1-3 per cent QoQ growth in the past three years. Be as it may, numbers finally reported for the quarter were a hair lower than what the Street was working with.
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Analysts’ Perspectives on CASA and NIM
Analysts reacted mixed to the slip in the CASA ratio. Bernstein, for one, which has an overweight call on the bank and a target price of INR 2,100, stated that while a lower CASA could negate the positives of a better loan mix, the effect will likely be marginal. Conversely, Macquarie said that while a bank is expected to dip, the NIMs (Net Interest Margin) will be mostly intact.
For the first time, the HDFC Bank’s pre-Q1 update included growth in average balances for deposits and also Assets Under Management for the quarter. The bank reported that average deposits grew by a robust 4.6% QoQ, while average AUM (Assets Under Management) saw a modest growth of 0.8%. This is on top of a massive build-up of deposits made towards the end of Q4 that inflated the base for comparison.
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Core NIM Moderation and Market Reaction
While deposits and AUMs growth came in positive overall, Nomura reiterated the possible moderation in core NIMs on a QoQ basis in Q1. NIM at HDFC Bank came in at 3.44% in Q4, but behind the 4%+ levels the major private bank peers logged.
The response from the market was instant after the Q1 update, and HDFC Bank shares have been flat over the past year, despite the recent rally after news that the weightage of the bank in the MSCI Emerging Markets EM index could see an increase. According to Nuvama, weightage could double to 7.2%-7.5% in the global index, bringing in about an estimated $3.2 billion to $4 billion in inflows.
About the Author
Akshita Siddhapura is a Business Analytics student at SCMS-B, passionate about finance and research. She has a keen interest in financial analysis and strategic growth, showing a strong commitment to business and finance.
