HDFC Bank Q2 preview: Expect double digit NII growth; watch for sale to ARCs

The lender is scheduled to publish its numbers on Saturday.

“After reporting decadal low NII growth at 9 per cent YoY in Q1FY22, we expect incremental growth led by retail and commercial/rural banking will sustain NIMs and NII growth in low double digit,” said analysts at ICICI Securities.

“Higher fee income and contained opex would lead to more than 15 per cent operating profit growth. Total provisions comprising specific, floating, contingency and general of Rs 25,000 crore is equivalent to 2.2 per cent of advances or 146 per cent of GNPAs,” they said.

Analysts agree that HDFC Bank continues to outperform industry in terms of loan growth at 4.4 per cent QoQ and 15.4 per cent YoY. On deposit accretion as well, it is outperforming peers. Retail loan growth has picked up traction with growth of 5.5 per cent QoQ and 13 per cent YoY.

In the last quarter, HDFC Bank reported a 16.1 per cent year-on-year rise in standalone net profit at Rs 7,729.60 crore. Net interest income (NII) for the quarter rose to Rs 17,009 crore from Rs 15,665.70 crore YoY, led by 14.4 per cent rise in advances and a core net interest margin of 4.1 per cent.

At that time, the private bank had said the second wave of Covid disrupted business activity for close to two-third of the quarter, leading to a drop in efficiency in collection efforts and higher levels of provisions. Traders and analysts believe this would not have any impact this quarter.

“NII will be supported by loan growth of 15 per cent and improved NIM. There is pick-up in non-interest income on improved fee income while controlled cost will support operating profit growth. Slippages from rural, CV and SME book are expected but will be lower QoQ,” said analysts at Axis Securities.

IDBI Capital expects NII growth of 8.6 per cent and strong PAT growth of 7.6 per cent YoY. It said advances growth will be around 15.4 per cent YoY while deposit growth at 14.4 per cent YoY.

The bank recently got permission from the RBI to reissue credit cards. Some improvement on that front is also expected from the lender. However, it needs to be seen if it can outpace the growth in its peers.

“Stable asset quality and credit cost will continue to aid profitability. Opex growth will continue to be lower than balance-sheet growth. Other income includes trading gain of Rs 250 crore on stake sale in CDSL. Overall coverage may decline to 134 per cent from 146 per cent in Q1FY22,” said analysts at PhillipCapital.

Among the key things to watch for, according to analysts, are sale of bad loans to ARCs, asset quality, restructure 2.0 and growth outlook on each segment.