HDFC Bank vs Bajaj Finance Q2 FY24

HDFC Bank reported a strong Q2 FY24, its first post-merger with HDFC Ltd. Net profit surged 50% YoY to ₹15,976 crore, driven by robust deposit and loan growth. Deposits grew 5.3% sequentially (₹1.1 lakh crore), with 83% retail, while advances rose 4.9% sequentially (₹1.0 lakh crore). Net interest margin (NIM) was 3.65% on total assets, absorbing ~25 bps drag from excess liquidity and ICRR. Asset quality remained stable with GNPA at 1.34%. Management expressed confidence in sustaining growth and profitability (ROA 1.9-2.1%), with plans to expand construction finance and cross-sell. Key risk: potential normalization of credit costs from current benign levels.

Guidance read

ROA maintained at 1.9%-2.1%: Management reiterated its ability to maintain return on assets in the 1.9%-2.1% range, consistent with historical performance. Construction finance book to grow steadily: The bank plans to grow the construction finance portfolio, which will support top-line and margin recovery. NIM recovery over time via better mix: Margins are expected to improve as the bank substitutes high-cost debt with deposits and shifts loan mix towards retail.

Risk read

Key risks include Credit cost normalization — Current credit costs at 49 bps are below historical mean of ~80-100 bps; reversion could pressure profitability.; Margin compression from excess liquidity — The 25 bps drag from ICRR and debt-funded liquidity may persist longer than expected, delaying NIM recovery.; Non-retail NPA slippage from HDFC Ltd book — Though management downplays risk, the inherited non-retail book has some tail risk of further slippage..

Promise ledger

Of 1 tracked promise, management 0 met, 0 close, 1 missed.

Bajaj Finance reported a strong Q2 FY24 with PAT of ₹3,551 crore, up 28% YoY, driven by robust AUM growth of 33% to ₹290,664 crore and disciplined cost management. The company added 3.58 million new customers, taking the total franchise to nearly 77 million. Asset quality remained healthy with net NPA at 31 bps. Management highlighted proactive portfolio actions, cutting 8-14% of business in urban/rural B2C segments to mitigate rising industry leverage. NIM compression of 14 bps sequentially was noted, with another 25-30 bps expected, offset by operating leverage. New initiatives like non-Bajaj Auto two-wheelers, car financing, and microfinance pilot are gaining traction. The board approved a ₹10,000 crore capital raise. Key risk: elevated competitive intensity and regulatory scrutiny on unsecured lending could pressure growth and margins.

Guidance read

NIM compression of 25-30 bps expected for full year: Management guided for another 25-30 basis points of NIM compression over the remainder of FY24, driven by rising cost of funds and competitive pressure on yields. ROA to sustain at 5% on exit basis: Despite NIM compression, the company expects to sustain a return on assets of 5% on an exit basis for FY24, supported by operating leverage. Microfinance pilot to expand to 100 locations by March 2024: The microfinance pilot launched in 12 villages will scale to 100 locations by March 2024, with a target of 300 villages by March 2025. Capital raise of ₹10,000 crore via QIP and preferential allotment: Board approved raising ₹10,000 crore, comprising ₹8,800 crore through QIP and ₹1,200 crore preferential allotment to Bajaj Finserv, to support growth.

Risk read

Key risks include Rising industry leverage in small-ticket loans — Management flagged that customers with multiple small-ticket loans (<₹50,000) show higher imprudence and default rates, prompting portfolio cuts of 8-14%.; NIM compression from rising cost of funds — Cost of funds is expected to rise as low-cost borrowings mature and are replaced at higher rates, compressing NIM by 25-30 bps for the full year.; Regulatory scrutiny on unsecured lending growth — Analyst raised concern about RBI's focus on unsecured loan growth; management acknowledged moderation in value but noted count growth remains elevated.; Potential risk weight increase on unsecured loans — Analyst asked about impact of possible risk weight hikes; management said they have levers to manage profitability but did not quantify impact..

Promise ledger

Of 1 tracked promise, management 1 met, 0 close, 0 missed.