HDFC Bank’s loan growth may decelerate to under 10%

HDFC Bank is expected to experience a slowdown in its loan growth, potentially dipping below 10% for the second quarter of FY25 (Q2 FY25). This comes as the bank reportedly plans to sell down a significant portion of its loan assets, ranging between Rs 60,000-70,000 crore. This move may be part of the bank's strategy to maintain profitability, but it could hit its financial ratios in the short term.

Impact on loan growth and share price

Macquarie, a leading brokerage, has an 'outperform' rating on HDFC Bank, setting a target price of Rs 1,900 per share. This implies a potential upside of 7% from the last close. Despite the expected slowdown in loan growth due to the base effect and loan sell-downs, the bank's shares have already seen a 16% rise over the past year. For investors looking to buy shares online, this could present an interesting opportunity to get ahead of potential growth.

However, Nomura has taken a more cautious stance, assigning a 'neutral' rating with a target price of Rs 1,720. The brokerage raised concerns about how the loan asset sell-down could negatively affect HDFC Bank's medium-term earnings per share (EPS) and return on equity (RoE). This highlights the importance of monitoring the bank's performance closely before deciding to buy shares online.

Positive margins despite a slowdown

Although loan growth may be slowing, HDFC Bank's net interest margin (NIM) is expected to improve by 5 basis points quarter-on-quarter to 3.52% in Q2 FY25. This is a positive sign for investors considering to buy shares online, as Macquarie projects other banks may see flat or declining margins. This improvement is particularly notable in the context of HDFC Bank's efforts to bring down its loan-to-deposit ratio (LDR) to more sustainable levels.

Key takeaways

• HDFC Bank's loan growth may slow to below 10% due to a large loan asset sell-down.
• Macquarie remains optimistic with a target price of Rs 1,900, while Nomura is cautious at Rs 1,720.
• The bank's NIM is expected to improve, offering a potential opportunity for investors looking to buy shares online.
• Keep an eye on the bank's financial ratios and loan growth trajectory post-merger for future investment decisions.