HDFC Bank is beefing up capital and provision to cushion a spike in bad loans post moratorium — and that’s helping its share price

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HDFC Bank is beefing up capital and provision to cushion a spike in bad loans post moratorium — and that’s helping its share price
HDFC Bank's share price rises by over 3% after earnings on SaturdayBCCL
  • HDFC Bank’s share price is up by over 3% on Monday morning after the financial institution declared its results on Saturday, July 18.
  • The bank reported a 20% jump in profits as compared to the same quarter last year.
  • Analysts expect HDFC Bank to bear through the impact of the coronavirus pandemic with more capital coming in and an in-house replacement of HDFC Bank’s current managing director, Aditya Puri.
HDFC Bank’s share price is up more than 3% after it announced its earnings over the weekend. The jump in share price also comes after shareholders have approved the bank to raise up to ₹50,000 crore through bonds to enhance capital base to fund its business growth.

HDFC Bank is beefing up capital and provision to cushion a spike in bad loans post moratorium — and that’s helping its share price
HDFC Bank's stock price over the last three monthsBSE/BI India

The bank reported a 20% increase in profits on a yearly basis. However, provisions for bad loans and contingencies were up 49% as compared the same quarter last year bolstering for what may come when the Reserve Bank of India’s (RBI) moratorium comes to end in August.

HDFC Bank is beefing up capital and provision to cushion a spike in bad loans post moratorium — and that’s helping its share price
HDFC Bank's profits over the last five quartersCompany filings/BI India

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Total portfolio under moratorium9%
Customers who availed moratorium97%
People who have cleared dues since first moratorium70%
People who rolled from the first moratorium to the second90%
Source:Motilal Oswal Securities

Analysts believe that adequate capital addition and the likelihood of an internal successor to the post of Managing Director (MD) are indicators that HDFC Bank has enough of a cushion to bear through however the coronavirus pandemic plays out. “Overall performance of the bank should remain steady and we expect the bank to offset near-term pressure on other income via tight control over opex,” said Motilal Oswal Securities’ review of the bank’s earnings.

BrokerageTipTarget PriceTime frame
ICICI SecuritiesBUY₹1,320 1 year
Motilal Oswal SecuritiesBUY₹ 1,2801 year
Yes SecuritiesBUY₹ 1,1361 year

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Banks, including HDFC Bank, are busy raising capital to cushion the impact of the coronavirus in the coming quarters. Shareholders of HDFC Bank have given their approval to raise up to ₹50,000 crore through bonds to enhance capital base to fund its business growth.

The bank is also in the midst of appointing a successor for its managing director Aditya Puri.

The three shortlisted names sent to the Reserve Bank of India include Sashidar Jagdishan, Kaizad Barucha and Sunil Garg. The former two are already executive directors at HDFC Bank Aditya Garg is the global chief executive officer (CEO) of Citi Commercial Bank.

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“CEO succession remains an important event in the near term and a key monitorable,” said Motilal Oswal Securities’ report.

SEE ALSO:
HDFC Bank is mum on the loans under moratorium⁠— profit jumps 20%, provision for bad loans spike 49%

HDFC Bank may see credit growth but its margins will continue to remain under pressure in Q1

HDFC Bank loans to be cheaper as interest rates get slashed by 0.2%
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