HDFC Q1FY22: Analysts see 2.5% rise in slippages

Hyderabad: India's largest private sector lender HDFC Bank has witnessed decadal low in Net Interest Income (NII) growth at 9 per cent year-on-year (YoY) in the first quarter of this financial year. Amid second Covid wave disruption, slippages were elevated at 2.54 per cent, when compared to 1.6 per cent in FY21 and 2.1 per cent in FY20.

According to the research analysts of ICICI Securities, the bank's low NII growth dragged earnings growth below expectations at 16 per cent in Q1FY22 against past 6-year average of 18-20 per cent. Net interest margin (NIM) at 4.1 per cent settled at the lower end of the guided range. Slippages were partially offset by sale of non-performing assets (NPAs) at Rs 1,800 crore and write-offs at Rs 3,100 crore.

Gross NPAs rose only marginally to 1.47 per cent from 1.32 per cent in FY21 and credit cost was contained at 1.7 per cent. Stage-3 assets for its subsidiary, HDB Financial, almost doubled. The analysts are confident about the bank performance as the demand resolution is just 100 bps sigh of pre-covid levels; recoveries benefit to flow in coming quarters.

The bank management said that the second wave of Covid-19 has impacted its customers quite a bit. The MSME portfolio has held up well as the customers have held on to the businesses and repaying well. The bank highlighted that MSME delinquency trend has improved and incremental MSME NPAs are lower than the previous quarter.

"Slippages, though, seem to be a tad higher, better recoveries and improved collections will likely support asset quality trends in coming quarters. The bank made specific provisions of Rs 4,200 crore and also created further contingency buffer of Rs 6,000 crore. This resulted in credit cost of 1.7 per cent relatively higher than FY21 run-rate of 1.5 per cent but lower than our expectations," the analysts say.