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Business Upturn
3 hours ago
- Business
- Business Upturn
HDFC Bank: Buy or sell? Brokerages maintain bullish view, see up to 18% upside on margin stability and long-term loan growth
By News Desk Published on July 21, 2025, 08:37 IST Top brokerages remain bullish on HDFC Bank, reaffirming Buy ratings after the private lender reported a steady Q1FY26 performance. While net interest margins (NIM) compressed more than expected and slippages ticked up marginally, analysts point to strong provisioning, resilient core profitability, and a roadmap for loan growth revival as reasons to stay constructive on the stock. Nomura – Buy | Target: ₹2,190 | Upside: 12% Nomura described the June quarter as a steady operating performance, with some softness on asset quality. However, the brokerage expects loan growth to pick up going forward, and sees the bank delivering RoA of 1.7–1.9% and RoE of 13–14.5% over FY26–28F. It values the core bank at 2.3x Jun-27F BVPS, maintaining a confident long-term view. Nuvama – Buy | Target: ₹2,270 | Upside: 16% Nuvama highlighted a sharp 19 basis point QoQ drop in reported NIM, more than expected, but noted that core NIM declined only 11bps, reflecting underlying resilience. HDFC Bank reprices its EBLR (External Benchmark Linked Rate) loans faster than peers, affecting near-term margins. The bank's asset quality remained best-in-class, with higher slippages primarily due to seasonal farm stress. Importantly, HDFC utilised nearly its entire ₹91 billion gain from HDB Financial Services for contingency and floating provisions, recognising just ₹8 billion as net gains—showcasing prudence in capital management. Core NII and PPOP were flat QoQ and up YoY, indicating operational stability. Bernstein – Buy | Target: ₹2,300 | Upside: 18% Bernstein called it a good set of numbers, with headline EPS up 11% YoY. After adjusting for one-offs like the HDB stake sale, floating provisions, and tax credits, EPS growth stood at 7% YoY. Bernstein highlighted the loan-to-deposit ratio (LDR) falling to 95%, which positions the bank well to repair its balance sheet and resume healthy loan growth from FY27E. The brokerage continues to back HDFC Bank's long-term potential. Brokerage Summary: Brokerage Rating Target Price (₹) Upside from CMP (₹1,956) Bernstein Buy 2,300 +18% Nuvama Buy 2,270 +16% Nomura Buy 2,190 +12% Despite near-term margin pressures, brokerages believe HDFC Bank's strong provisioning, capital discipline, and improving loan-to-deposit metrics will support sustainable growth over the next few years. All three firms remain firmly on the buy side, citing a favourable risk-reward at current levels. Disclaimer: The brokerage views expressed are based on publicly available research reports and do not constitute investment advice. Readers should consult a certified financial advisor before making any investment decisions. Ahmedabad Plane Crash News desk at
Indian Express
2 days ago
- Business
- Indian Express
Decline in NPAs has meant that credit is more readily available for industry
The credit growth of scheduled commercial banks, a bellwether of economic resilience, weakened to 9.5 per cent for the fortnight ended June 27 vis-à-vis last year's growth of 17.4 per cent. Credit growth has, however, been declining since May 2024, due to a confluence of myriad reasons. One, the RBI's decision to increase risk weights on certain segments of consumer credit and bank lending to the NBFCs towards the end of 2023 saw loan growth in these two sectors fall sharply, ensuring a much-desired slowdown in unsecured loan growth. Unsecured credit, constituting 25 per cent of retail loans, has seen growth plummet to 7.9 per cent in March 2025 and 7.8 per cent in May 2025 from 28.3 per cent in March 2023. Along similar lines, credit to NBFCs, making up roughly a third of services credit, declined to 5.7 per cent in March and (-) 0.3 per cent in May. The efficacy and rationale of the RBI's directives can be gauged from the fact that even after curtailing the exuberance for a year and a half, NPAs in unsecured retail loans jumped to 1.8 per cent in March this year from 1.5 per cent the year before. Two, the relatively low share of floating loans by private sector banks in retail loans causes friction in the transmission of low interest rates to borrowers. Private banks' retail portfolio benchmarked to EBLR (external benchmark lending rate) is 54.7 per cent, while for public sector banks (PSBs) it is 59.8 per cent. Three, there is a seemingly visible shift in balance from the private to public banks. PSBs showed stable growth of 12.2 per cent in 2024-25 compared to 13.6 per cent in 2023-24. However, the credit growth of private banks declined to 9.5 per cent — the lowest since 2020-21. Further, the share of PSBs in incremental credit has also increased to 56.9 per cent in FY25 from merely 20 per cent in FY18, reaping rich dividends from the government's strategy of recognition, resolution, recapitalisation and reforms. Banks' gross NPA (GNPA) ratio has declined to a multi-decadal low of 2.3 per cent with the provision coverage ratio of 76.3 per cent in March 2025, as services and industry GNPAs declined significantly. The decline in industry NPAs, to 2.3 per cent in March 2025 from around 4 per cent in September 2023, is mainly due to the decline in MSME NPAs to 3.6 per cent in March 2025 from 10.8 per cent in March 2021. With a fall in NPA, credit to industry, led by MSME, has been growing steadily and its growth has outpaced those of other sectors during FY25. The share of industry credit in overall incremental credit growth has increased to 17 per cent in FY25 from 11 per cent in FY24. There is a turnaround story for MSME credit that needs to be told in detail. MSME credit, which grew by merely 5-7 per cent during 2011-2013, is now growing in double digits at around 18 per cent in May 2025. Let us ponder over this shift. There has been an increase in the supply of credit to existing borrowers in the MSME sector, because of an improvement in their balance sheet. Serious delinquencies — measured as 90 to 120 days past due (DPD) and reported as 'substandard', have dropped to a five-year low of 1.8 per cent. Additionally, the revised definition of MSME, with increased investment and turnover limits, will increase credit growth further. The formalisation of MSMEs with the help of URN seeding is giving a necessary fillip to credit growth. The government has taken great initiative in providing enhanced guarantee cover to various categories of MSME borrowers, facilitating them in unblocking working capital by converting trade receivables into cash. Alongside, the turnover threshold for buyers' mandatory onboarding on the TReDS platform has been reduced from Rs 500 crore to Rs 250 crore. The MSME Samadhaan portal is also being reimagined for cash flow efficiency. MSMEs could thus benefit from a plethora of overlapping factors, capacity expansion in a benign regime when public policies are getting increasingly reoriented for their welfare. MSMEs depend greatly on large corporates through backward integration (and at times, forward integration) and hence their activity level could be a latent gauge of corporate activities. Promoting technological excellence tailored according to their requirements at optimal costs, mitigating information asymmetry and ironing out supply-chain issues could prove to be the tipping point at the next stage. We are also witnessing diversification and broadening of credit markets in India. Private credit markets are making rapid inroads with flexibly structured deals as global biggies join hands. Hence, the evolving trajectories of India's burgeoning credit markets would necessitate a pivot in regulatory attention sooner than later (In the US, lawmakers are asking for stress testing, as also questioning exuberant rating rationales.) Further, corporates are increasingly tapping off-bank channels such as commercial papers, ECBs and capital markets instruments to optimise their borrowing mix. Lastly, India Inc has significantly deleveraged its balance sheet, while increasing cash holdings. In the last two fiscals (FY24 and FY25), the cash and bank balance of corporates has jumped by around 18-19 per cent. Major sectors reporting increased cash holdings include IT, automobiles, refineries, power, and pharma. The cash and bank balances of India Inc, excluding BFSI, is estimated at around Rs 13.5 lakh crore in FY25, indicating cash accruals are a potential vector in funding capex plans. So, what does the future hold? We believe that going forward, the sources of credit origination through bank deposits (primarily household savings in bank deposits) need to be keenly watched. The financialisation of household savings has gained significant momentum (the share of equities in household savings has increased from 2.5 percent in FY20 to 5.1 percent in FY24; China is at 9 percent) and this will have crucial implications for banking sector credit growth. The writer is member, 16th Finance Commission and group chief economic advisor, State Bank of India. Views are personal
Time of India
5 days ago
- Business
- Time of India
HDB Financial shares may rally up to 10%, say brokerages unfazed by weak Q1. Why are they bullish?
Shares of HDB Financial Services could climb as much as 10% from current levels, according to analysts at Emkay Global and InCred Equities, who maintained a bullish stance on the non-bank lender despite a seasonally weak first quarter marked by modest loan growth and rising credit costs. Emkay Global reiterated its 'buy' rating on the stock with a target price of Rs 900, citing expectations of improved margins from the September quarter onward. 'One weak quarter does not change our investment thesis,' the brokerage said, calling HDB a long-term 'play on enterprising Bharat.' The target implies over 10% upside from the current market price of Rs 815.90. InCred Equities, while not assigning a target price, said HDB is 'finding the balance between AUM growth, NIM and credit cost', noting positive signals from margin expansion and better asset mix. The brokerage highlighted that 95% of HDB's borrowings are linked to the External Benchmark Lending Rate (EBLR), allowing faster benefit transmission from interest rate cuts. Shares of HDB Financial Services were trading 3% lower on Wednesday at Rs 815.90 on the BSE. Margin resilience, product mix shift underpin outlook Live Events Despite a 2% sequential rise in AUM to Rs 1.1 trillion and a 14% drop in disbursements, brokerages noted that HDB's shift toward higher-yielding segments such as used vehicles and consumer finance helped shore up profitability metrics. The company reported a 10bps expansion in net interest margin (NIM) during the quarter, aided by a 30bps improvement in yield, driven by product mix recalibration. Emkay said that margins are likely to improve further from Q2FY26 due to the rising share of fixed-rate loans, over 75% of the book, and the positive impact of rate cuts on the cost of funds. InCred said that 'the management has indicated more room for margin expansion' and pointed to operational strength despite top-line pressure. Credit costs elevated, but expected to normalise Both brokerages flagged asset quality pressures and elevated provisions as near-term concerns. Gross Stage 3 loans rose to 2.56% of total advances in Q1FY26, while credit costs stood at 2.5%, largely due to stress in the CV and unsecured business loan segments. Provisions jumped to Rs 670 crore, compared to Rs 412 crore a year earlier. Still, analysts said the risks are manageable. Emkay noted that the company is actively recalibrating the CV/USL book to contain credit costs, and the management expressed confidence in normalisation from Q2FY26. InCred echoed this view, and said that 'credit cost is likely to stabilize through Q2 and improve thereafter.' The provision coverage ratio (PCR) on Stage 3 assets stood at 56.7%, while Stage 2 loans rose 41% quarter-on-quarter, with a lower PCR of 20.4%. However, InCred said management remained 'comfortable at a lower PCR for stage 2 loans.' Fundamentals strong despite softer profit HDB Financial reported net profit of Rs 568 crore, down 2% year-on-year, while net interest income rose 18% YoY to Rs 2,092 crore, and pre-provision operating profit grew 17% to Rs 1,402 crore. Total loans grew 14% YoY to Rs 1.09 lakh crore, and AUM rose 15% despite seasonal softness in disbursements. Operational metrics remain healthy, brokerages said, and the company's rural footprint, strong underwriting framework, and in-house collection strength, including 12,500 employees across tele-calling and field teams, provide a cushion against near-term volatility. The improving macro environment and rural recovery are expected to support growth and profitability, Emkay concluded, reaffirming its confidence in HDB's medium-term prospects. Also read | HDB Financial Q1 Results: PAT falls 2% to Rs 568 crore; NII rises 18% on healthy loan growth ( Disclaimer : Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
Time of India
6 days ago
- Business
- Time of India
SBI lending rates: Your loan EMI to come down as SBI cuts MCLR by up to 25 bps
Synopsis State Bank of India has reduced its marginal cost of funds-based lending rates (MCLR) across all tenures, effective July 15, 2025. The cuts, up to 25 basis points, bring MCLR rates to a range of 7.95% to 8.90%. Additionally, SBI's External Benchmark Lending Rate (EBLR) is 8.15% effective June 15, 2025. Home loan interest rates vary from 7.50% to 8.
Economic Times
06-07-2025
- Business
- Economic Times
There is scope for a 25-bps repo cut in 2025... RBI will look at data, aid growth, says SBI MD Rama Mohan Rao Amara
Agencies Rama Mohan Rao Amara Surplus liquidity is a 'pleasant problem' for State Bank of India (SBI), Rama Mohan Rao Amara, MD, International Banking, Global Markets and Treasury, tells ET's Joel Rebello and Sangita Mehta. He oversees a ₹66-lakh-crore balance sheet at India's most-valued government lender as head of its treasury. SBI expects another quarter-point reduction in policy rate this calendar year, Amara acknowledged that mobilising deposits is a tough task when depositors look for higher returns in a falling interest rate scenario, even as geopolitics, digital fraud and imported inflation remain key risks. What are the practical challenges that banks face after the unexpected cuts in repo and CRR? It is a pleasant problem to have from a situation of running into a deficit only a few months ago. A lot of credit goes to the Reserve Bank of India (RBI) that from a deficit, we have moved to a system-level surplus with ₹9 lakh crore of durable liquidity. Short term rates are plummeting after the cuts. The change in stance by the RBI (to neutral) was surprising, indicating long-term rates are here to stay and this has led to a steepening of the curve. For a long time, long-term yield was almost flat and in certain sections inverted. We expect the short term rates to still come down further, with the long term moving sideways. We expect the ten year to be in a broad range of 6.1% to 6.4% and the rupee to be in the ₹84 to ₹86 per dollar range. How do you expect rate cuts to be transmitted to the broader loan books? The transmission is still playing out. Year after year, loans linked to EBLR (External Benchmark Linked Lending Rate) have increased. The portfolio which is linked to MCLR (Marginal Cost Based Lending Rate) and other rates will slowly witness the transmission. So when transmission is complete, if inflation plays out as expected, the RBI may look at the data points and definitely there is further scope for a 25 basis point cut in repo this calendar year, and that is our house view also. What could be the triggers for another cut? Favourable factors like a normal monsoon-and certainty on the trade front. These are all triggers for them (RBI) to take a call. It gives them room or the manoeuvrability to aid the growth as well. I think the next decision on rate cut will be more data based. The front loading has given them enough time to observe how the system is behaving. So they will have the benefit of looking at the data, and of course, they will take measures to aid the growth. With the banking system flush with liquidity, how low can deposit rates fall for banks to keep attracting customers? It's been a challenge for the last few quarters. Every bank is prioritising deposit growth in face of competition from mutual funds or the insurance companies. Banks have to adopt a multi-pronged approach in improving customer engagement, creating innovative products which is possible thanks to technology advancement and use of AI-ML. You have to customise and even with a hyper personalisation where you make the right offer at the right time to a customer. That kind of hyper personalisation is possible thanks to technology advancement and use of AI-ML. You have to sweat all your channels, retail franchise, digital channel, or third party ecosystem. Individuals also will have a propensity to lock into the fixed deposit rates now anticipating a decline in the interest interest rates declining, corporates are shifting to bonds. How are banks protecting margins?We have an active treasury looking for opportunities. We have an active corporate investment book, though not comparable to the loan book growth. On margins, we are working on two fronts, wherever opportunities are there, we invest in the corporate investments short term, and also working on how to reduce deposit costs. SBI has already announced QIP plans. Are there any fundraising plans through infra bonds or tier two bonds for this year? As on date, the total outstanding infrastructure bonds with SBI is ₹69,718 crore. We have a sizeable infra book to support infra bonds. But if we feel like that net of all the costs, that is a much cheaper option, we will go for it. Last year, we saw a record dollar fund raise. Given the expected decline in the Fed rate and hedging costs, will corporates still be interested in dollar bonds? The difference between the dollar and rupee 10 year G sec has narrowed to 1.8% versus 3% a few quarters ago. Ample liquidity will incentivise corporates to tap the domestic market. For the ECB, without a natural hedge you are running into risks. But some NBFCs want to diversify their resource base, so they will be looking at ECB. But as on date, if you ask me, there is a more incentive for the corporates to tap into their domestic rupee because of ample liquidity. The RBI's biggest concern is breakdowns of IT infrastructure by financial institutions. Given SBI's size, how are they navigating these risk and compliance challenges IT? Tech resilience definitely occupies our mind space even at the board level, whether we are doing enough. For a customer, the system should be available 24X7 without any disruption and reduced unscheduled downtime. It is complex, given the legacy systems and dependencies on various vendors and the fintechs. We have created a Resiliency Operation Centre to observe the behaviour of the systems, or hardware or servers, or behaviour of applications. The aim is to anticipate the problem much before it occurs. So it is more like a proactive observability of various systems which we work on.
