ValuePickr Forum

HDFC Bank- we understand your world

The figures you mention are in millions. So its 427.5 crores vs 525.6 crores.

Impairment on financial instruments 678 crores vs 326 crores in preceding half year. This is an additional impairment of 350 crores in comparable periods.

HDFC Bank standalone net profit for Sep 2018 was 5000 crores, just to get a perspective of things.


Why did they publish this before the ipo and hdfc bank results. Being a subsidiary of bank can they declare it early unless it is a separately listed entity.

Any idea, what financial instruments are they talking about here? Are these additional provisions or change in pricing of some borrowings/hedging instruments?


My experience with reward points is that they are deceptive. When you try to encash them, you don’t get anything as the conversion ratio of points to rupee is very low.

I have HDFC Bank’s Diners Premium card and rewards points are actually useful here. Earlier we could recharge mobile or DTH directly from site. Now we are restricted to just flight and hotels bookings. But it’s still useful, specially when points are 10X.

In past, I have bought big ticket items for cousins and friends with 10X benefit and returned them 20% back. 20% is lucrative discount.

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@Chandragupta, @nikrod12:

I have Diners Black Card and it still has 10x points that can be redeemed on flight booking among other options. It made me switch from a Citi Bank card which I was using for 6+ years.

More than the points I earn, the point to mention in this thread is that, I see HDFC Bank is expanding rapidly in premium cards space.

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Please see Other Income growth


has anyone figured out how is HDB(the NBFC arm and subsidiary of HDFC Bank) growing?
is it increasing its share in the overall pie of HDFC Bank?

Transcript of concall
Some important point as per my perception

  1. Bank is in investment mode and not worried about few basis point deep in NIM%, sign of long-term thinking

Management says : So on the employee front, as Srini did mention, the bank on a year-on-year basis, have added about 489 branches, okay? So you would need people for that because we believe that distribution is one of our strongest point. Probably in our earlier calls, we did sort of even give an indication that we would be opening somewhere around the 600 to 700 further distribution points in our network. So that is where you will see the kind of employees getting more added. But in addition to that, let’s face it, we are not sort of diluting our technology investments or we are not removing our focus on digitizing our processes and product offerings. The fact of the matter is, despite what you do, there is still in India, there will be an ex percentage of people who would need to have – would not be as savvy digitally as you and I are. So there would be people who need to go and source, especially on the sales side, where you need a lot of investment, a lot of people to go and get business as well as an asset or a liability of the cards business. There is a finite capacity of how much each one can do. When it sort of reaches the kind of a capacity, you’ll need to add more people. So while – as Srini was mentioning, we are growing our total advances by about 19.5%. It’s not a small amount, you’re adding almost about A BANK WITHIN A BANK . So we will see people being invested in the branch banking area. We will see in the retail asset area. We will see in the agri distribution because agri is far more intensive. We will see people in this sustainable livelihood because that’s something where we are very proud of. We give back to society, it also sort of helps us in – it’s a good, great business model. So combination of all this is where we have seen a 17% growth. So you will see people moving. But as Srini was mentioning, the jaws will continue to be – the gap will be there. If the revenue is growing at 21%, we’ll try and maintain the jaws between the 17% and 18% of expenses growth. Or if the revenues were to come down, so would the cost will. So that’s kind of play we will always have, and that’s the kind of a strategy that we are going with. So I’ve explained to you on the people side. The second one is on the MARGINS where you are saying that the margins have come up from 4.3% to 4.2% from June quarter to the September quarter. That’s principally, as you also alluded to it, I think we have consciously right from the last 2 years, I’ve been focusing on mobilizing granular retail deposits. Now whether you like it or not, time deposits is necessary, especially when you have a kind of a appetite to grow on the credit side on the asset side. So this is a – we are very clear that the sales machinery will not be – we will not – we don’t want a yo-yo the – in giving directions to the huge distribution that we had to say that, okay, this quarter, you’ll focus on fixed deposits, next quarter, you don’t focus, that will sort of really destabilize kind of a sales machinery that we have created. So we are happy to have excesses. We are happy to have excess liquidity up to a certain point in time, which is what is reflected in the current margins. As Srini was mentioning, our margins would have been higher by about 15 basis points if we had sort of slowed down the deposits, but from a medium- to long-term, this is the right way to do it. So even if it sort of shaves off a bit of a margin, we are happy, and that is what it is.

2 Tax Rate and Deferred tax assets

Management: First, the deferred tax rate, right, how it is created? That’s the difference between the book profit from the tax profit. The book profits, example – one particular example we can give you is take the provisions. Provisions are made according to accounting standards and according to RBI guidelines. Tax allowance provisions in a different formula. One, it has to be fully written off, and two, there is some formula-based deductions. So they’re always – the tax allows for this credit provisions at a scale, which is lower than what the book takes. So because of that, we have to create deferred – according to the accounting standards, we have to create deferred tax asset. So that is how the tax – deferred taxes created from the books. And we have to evaluate these deferred tax on an annual basis, considering what the prevalent tax rates are and your ability to consume going forward. So to the extent that we pursue profitability and the tax rate remains stable, the deferred tax continues to be on books without any change. There will be in and out. You consume and then you put back, that goes on. In terms of this quarter, the tax rate changed. So we are up with the new tax rate from the previous tax rate of 34.7% to 25.17% – 25.2%. That would mean we have to evaluate the carrying value of the deferred tax asset and revalue to the current tax rate, right? And that impacted INR 1,650 crores we said earlier in the call, that was a onetime charge that was taken. Getting to the third aspect of the question, which is if the tax rate is 25.2%, why is the effective tax rate 32% or thereabouts? Because what happens is that you have to take this charge of INR 1,200 crores. So the tax rate year-to-date comes to 25.2%. But since you reevaluate the deferred tax and take a charge on that, that takes it to 25.2% goes to 32%. And then when you go into next quarter, you will see it is back to 25.2% because that onetime adjustment is already factored in and then it goes as this is as usual.

I think now as NPA are stable so worries for relative undrperfomuns don’t remain even though other banks have not declared there results



In case anyone in interested, I had written a note on HDFC Bank’s past 5 years performance on all parameters - Balance sheet, Capital ratios, NII, NIMs, NPAs, Provisions, Opex, Liquidity and more. You will get an understanding of how the Bank has performed and some of the common banking terms & their meaning by going through this:

Disc: Invested



Consumer-durables financing used to be a product segment that banks weren’t very keen on, and because of this, NBFCs such as Bajaj Finance took it up 10 years ago – and thrived. However, in the last six months, it is becoming quite clear that this segment is no longer pariah for banks – case in point, market leader HDFC Bank’s aggression in this space. This new approach of banks – of looking at a customer from the perspective and prospective of their lifetime rather than per transaction – will lengthen the product offerings lists of banks and simultaneously increase the “not-to-do list” of products for NBFCs.

You are bang on. People Ignore the ability to raise low cost funds. And HDFC Bank and the HDFC Ltd are very good at it.

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HDFC bank being another hdfc bank is not just a statement.There are multiples reasons for my rationale : 1) HDB (the 95% owned Nbfc arm of HDFC Bank is growing 25 to 30% YOY) - huge runway,reach and money given the pedigree 2)hdfc smart buy platform has been a spectacular thing: features are just amazing, it will elbow out paytm,cred,freecharge,mobikiwiks of the world(even flipkart IMO), the kind of offers,features(compare and buy),10x reward points on HDFC credit cards; a lot of my friend circles have started buying from there; 3) hdfc smart buy is creating more and more hdfc credit card customer additions; if you have not used smart buy,please try once 4)despite AMC,Housing finance and life insurance being separate listed companies, i think the combination of best private banking,HDB,Smartbuy,payzapp and general insurance is an outstanding growth business going forward for the next 5-10 years.A P/B of 4.5 for all these factors is quite reasonable IMO.
Disclosure: a major allocation of my portfolio.Views may be biased.

  1. The Bank’s advances aggregated to approximately ₹ 9,340 billion as of December 31,
    2019, a growth of around 20% as compared to ₹ 7,810 billion as of December 31, 2018
    (₹ 8,970 billion as of September 30, 2019).
  2. The Bank’s deposits aggregated to approximately ₹ 10,675 billion as of December 31,
    2019, a growth of around 25% as compared to ₹ 8,525 billion as of December 31, 2018
    (₹ 10,216 billion as of September 30, 2019).
  3. The Bank’s CASA ratio stood at around 39.5% as of December 31, 2019, as compared to
    40.7% as of December 31, 2018 and 39.3 % as of September 30, 2019.
  4. During the quarter ended December 31, 2019, the Bank purchased loans aggregating ₹
    42.58 billion through the direct assignment route under the home loan arrangement with
    Housing Development Finance Corporation Limited.

From today’s BSE announcement

Bank has maintained steady growth y on y
Cost cutting due to digitization and technology upgradation (stated by Aditya puri in CNBC interview) may help bottom line


From the data posted by you, CASA is reducing, deposit is faster than credit.NIMs may move downwards

For the first time in about10 years, there is de-growth in the post-provision profits in the last two quarters. The rate of de-growth in the same appears to be accelerating as well (its just two data points, but its there) which is what could have spooked the markets, although the PAT growth appears very healthy due to the excellent streams of Other Income that the bank has, the main lending business could be showing early signs of fatigue.

Pre-provision profit growth would be a function of rate of growth of loan book, rate of expansion of NIM which in-turn would be a function of the environment the bank is operating in. The wider economic slowdown perhaps is shown in the deceleration in growth there. The rate of growth in provisions has reduced as well, although the GNPA/NNPA numbers have climbed from historic levels. If this part of the book needs to be provisioned for, it could be more of the same in the coming two quarters. This part is a function of the management. So the de-growth in Post-provision profits could be a overhang for another couple of quarters here.

The bottomline numbers and the willingness of the market to give a longer rope to businesses like these, could keep things anchored here for some time to come, instead of a deeper dip.


On the other hand, for ICICI Bank, the trajectory is looking up on all fronts. Their pre-prov profits are increasing at a healthy clip, provisions, gnpa and nnpa are all trending down, post-prov profits are trending up.

Disc: Invested small portion in HDFC Bank in an attempt to understand Banking.


Sir from where you got the data in such a beautiful tabulated form .