India’s HDFC Bank posts worst day in nearly 4 years on margin concerns

BENGALURU (Reuters) -Shares of India’s HDFC Bank fell more than 8% on Wednesday, their worst day since March 2020, after the country’s biggest private lender reported weak margins for a second consecutive quarter.

While HDFC Bank’s standalone net profit for the third fiscal quarter beat analyst estimates, its core net interest margin (NIM) on total assets fell to 3.4% from 3.65% in the previous quarter.

Those margins were above 4% for the bank before it merged with parent Housing Development Finance Corp (HDFC) in July last year.

HDFC’s higher borrowing costs and a lower-yielding loan book have weighed on the merged entity’s margins in the two quarters it reported results after the merger.

Brokerage Jefferies said margins were a “key miss” and that higher retail deposit mobilisation and lending will be key to lifting NIMs.

HDFC Bank was the first major bank to report December quarter earnings.

The stock’s drop on Wednesday was the main reason for the benchmark Nifty 50’s fall of more than 2%. It also dragged the bank sub-index down 4.3%.

Peers ICICI Bank, Axis Bank, and Kotak Mahindra Bank also settled down between 2.7% to 3.7%.

“Improvement in NIM is critical for re-rating of the stock,” Macquarie said in a report late on Tuesday.

Analysts also flagged concerns about the bank’s deposit growth rate as the loan-to-deposit ratio remained elevated at 110% post the merger.

“The bank’s intention of driving deposit growth through branch addition is tough to execute given slow pace of branch addition and new branch locations being focused mainly outside Tier-1 centres that have low deposit potential,” analysts at Yes Securities said.

HDFC Bank’s stock rose around 5% in 2023, less than the 12.3% jump in the Nifty Bank index and the 20% gain in the Nifty 50.

($1 = 83.1325 Indian rupees)

(Reporting by Nishit Navin in Bengaluru; Editing by Dhanya Ann Thoppil and Janane Venkatraman)