HDFC seen outperforming as Indian banks’ woes continue

Bloomberg

HDFC Bank Ltd. reported net income growth of nearly 18% and ramped up bad loan provisions in the latest quarter, a period marked by the bailout of another bank as well as the imposition of a nationwide lockdown to stop the spread of coronavirus.
Analysts remain bullish on HDFC Bank, with an average rating of 4.76 on a Bloomberg scale where 5 is a unanimous buy. The lender is seen being able to better withstand the pandemic impact due to its position as a market leader. Its shares are down 26% this year, the least of all Nifty Bank Index members. The stock climbed as much as 5.6% on Monday and was headed for its highest close since March 17.
“HDFC Bank’s business growth remains robust despite economic activity getting impacted due to the Covid-19 outbreak,” Nitin Aggarwal, an analyst with Motilal Oswal Financial Services Ltd., said in a note. “A strong liability franchise will support margins, while higher liquidity levels would enable the bank to ride the current crisis and gain
further market share.”
The bank’s net income rose to 69.3 billion rupees ($907 million) in the quarter ended March 31, compared with an average 72.5 billion rupees estimate in a survey of eight analysts. Provisions against soured debt jumped to 37.8 billion rupees from 18.9 billion rupees a year ago.
“The bank could take market share from India’s large public lenders, with a retail portfolio likely to stay second only to State Bank of India,” Diksha Gera, an analyst with Bloomberg Intelligence, said
in a note.
Despite the optimism over HDFC Bank, market participants remain cautious on the sector overall. India financials have been reeling from a shadow-banking crisis that culminated in the Yes Bank Ltd. bailout. The pandemic struck just as lenders were about to see signs of stability. The Reserve Bank of India has moved to further ease liquidity and bad-loan rules to keep funds flowing through the economy.
“If a bad loan cycle begins for retail, the fear psychosis of taking risk off the table will reduce the credit to the segment,” said Kenneth Andrade, chief investment officer at Old Bridge Capital Management Ltd, overseeing assets of $400 million.