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HDFC Bank Q2 preview: May post over 16% profit growth; asset quality trends key monitorable

 Pre-provision operating profit growth could be in the 10-12 percent range in Q2 due to lower other income

HDFC Bank is expected to report over 16 percent growth in profit as well as net interest income (NII) in Q2 FY21. Asset quality may weaken a bit sequentially.

Profitability of the country's largest private sector lender may be hit by higher provisioning on expected restructured accounts (COVID-19 related), but lower tax rate may support earnings growth.

The bank had earlier reported a 16 percent year-on-year growth in Q2 advances at Rs 10.37 lakh crore, while deposits grew 20 percent to Rs 12.29 lakh crore.

"NII is expected to be moderate to 16 percent YoY on account of lower NIM, with the bank carrying excess liquidity. On a quarter-on-quarter basis, the same is seen around 3 percent on account of the lockdown imposed in certain states and conservative approach of banks," Narnolia Financial Services said.

The slowdown in retail loan growth is on account of weak volume growth in the auto and unsecured portfolio, it added. It means the credit growth is largely expected to be driven by corporate portfolio.

Pre-provision operating profit growth for the quarter could be in the range of 10-12 percent due to lower other income.



Asset quality is expected to increase sequentially. "We expect gross non-performing loans ratio to be around 1.5 percent of loans, which implies a marginal QoQ increase. The focus of investors would be on management commentary regarding near term asset quality trends and the quantum of restructuring (which is likely to be clear by Q4 FY21 only)," Kotak Institutional Equities said.

The stock gained 2.5 percent to close at Rs 1,199 on October 16 ahead of its quarterly earnings. It rallied over 12 percent during September quarter, but has corrected over 5.5 percent year-to-date.

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