HDFC Bank’s deposit growth leads to buy rating from Jefferies

HDFC Bank shares are attracting considerable interest as Jefferies has issued a 'buy' rating, setting a target price of ₹1,890 per share. This announcement comes as the bank implements strategies aimed at enhancing its financial stability and market position. 

For investors looking to buy shares online, this rating signals a potentially lucrative opportunity. Jefferies believes that HDFC Bank’s commitment to improving its loan-to-deposit (LDR) ratio and fostering robust deposit growth makes it a compelling investment choice.

Targeting a healthier loan-to-deposit ratio

HDFC Bank plans to reduce its loan-to-deposit (LDR) ratio to between 85% and 90% over the next three years. Jefferies believes this goal is achievable through a CAGR or compound annual growth rate of 15% in deposits, coupled with a slower loan growth CAGR of 11%.

The LDR is a vital statistic that contrasts a bank's total loans with its total deposits. It helps evaluate a bank’s liquidity, funding strategies, and overall riskiness.

Branch expansion and market share

The brokerage firm noted that a branch expansion strategy will likely enhance HDFC Bank's market share in deposits. However, it anticipates the bank's loan growth will remain at or below the sector average.

Despite this, HDFC Bank has room to reduce its funding costs, which may positively impact its net interest margin (NIM). Jefferies indicated that compliance with priority sector lending requirements is expected to be relatively low in profits.

Adjustments to growth estimates

Jefferies has lowered its growth estimates for HDFC Bank by 4-6% to reflect slower loan growth. Nevertheless, the bank’s cautious approach to unsecured loans should help manage credit costs, thus maintaining profitability stability.

Investors eagerly await HDFC Bank’s Q2 FY25 earnings report, scheduled for October 19. Recently, the bank revealed in its Q2 business update that deposit growth has outpaced loan growth.