HDFC Bank Earnings Call Nuggets: Further Margin Falls and CV Sell Downs

HDFC Bank Ltd ADR (NYSE:HDB) recently reported its third quarter earnings and discussed the following topics in its earnings conference call.

Further Margin Falls

Rakesh Kumar – Elara Capital: So just one question on margin front, looking at growth what we are doing in this nine months on the – I guess asset and liability side, if we continue with this kind of growth, do we expect further fall in margin, because their net addition to the advances book will be quite lesser actually? So do we expect that the margin will fall further from here – from the third quarter number?

Paresh Sukthankar – Executive Director: Let me try and answer that in two ways. One is, in terms of how we see the margin trending and whether the asset growth has anything to do with the impact on margins. So, on the first one, I think we’ve been saying this for a long time and we’re still maintaining that the net interest margin range still remains a 3.9 to 4.3 or in more recent times, if you look at the last couple of years, maybe pretty much 4 to 4.2 sort of a range. The rate of growth in the loan book, which is, for this quarter was 24%, I don’t think that by itself has anything much to do with the margin at all. The movements in both directions that we’ve seen, because as I said, it was 4.1 in the corresponding quarter, it was 4.2 in the previous quarter, it’s 4.1 again, the movements in both directions has got more to do with what’s happening to the cost of funds, which is again a function of what’s happening to fixed deposit costs, which as you know are – right now have come off from the peaks.

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A slightly lower CASA ratio, again reflecting primarily a slightly slower growth in core current accounts, which again is because the one-off that we get from time to time from the capital markets related businesses in terms of the stock exchange activity or IPOs and so on and the level of current accounts that come with the level of activity in (trainees) and others, obviously that has been slightly lower with the slower growth rate in the economy. So one is the impact on NIMs because of the mix and cost of deposits, and the other is, of course, what’s happening to the mix of our loan book, which has pretty much for the last few quarters remained at this 52%, 53% Retail and the balance Wholesale.

Apart from the deposit piece, one relevant point from a cost of funds perspective is that in the last year or so, or certainly in this financial year, which was nine months. We have raised almost INR5,000 crores of Tier 2 capital. In fact, in this quarter itself as well we’ve raised about INR1,970 crores, let’s say, close to INR2,000 crores of Tier 2 capital, which again is obviously slightly higher, I mean, cost than as compared to on your average cost of deposits. So I would reiterate that the pace at which we would grow our loan book will be a little faster than the system loan growth, and I would not link the rate of growth on the loan book to any specific movement in margins, at least at this point of time.