HDFC Bank's shares open 2.5% lower after Q3 business update; check details

HDFC Bank share price opened 2.5% lower at ₹1,740 apiece on Monday after bank's Q3 business updates indicated a mixed trend. The country’s largest private sector bank reported below-expected business growth during December, indicating a weak credit growth scenario for the banks. HDFC Bank, the top stock with the highest weightage in the NIFTY50, is expected to pressure markets on Monday.

Key highlights of business updates

The monthly business updates for December indicate that the bank’s credit growth during the period slowed down drastically as the bank focused on lowering the LDR (Loan-Deposit ratio). The gross advances for the bank stood at ₹25.4 lakh crore, higher by 3% YoY and 0.9% QoQ, as compared to the deposits at ₹25.6 lakh crore, which grew by 2.5% QoQ and 15.8% YoY.

What does this indicate?

HDFC Bank, post the merger with HDFC Ltd, was struggling to cope with the high cost of funding with a lower CASA ratio and higher LDR ratio. With the Bank’s deposit growth outpacing the advances growth, it brings some comfort to the bank's cost of funding. However, a sluggishness in loans and advances with just 0.9% sequential growth and 3% YoY growth, indicating weakness in the bank's credit offtake. Consequently, this will likely impact the bank's interest income in the coming quarters.

HDFC Bank reported modest growth in Q2FY25 earnings, with profit after tax growing 5.3% YoY and 4% sequentially. This was largely due to a 10% YoY jump in net interest income and 0.9% sequential growth. Shares of HDFC Bank delivered a modest growth of 4.2% in 2024 as earnings growth weighed high on investor sentiments.