Angel keeps ‘accumulate’ on HDFC Bank shares; rising provisions fail to deter

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“While in absolute terms, provisions have gone up by INR 546 Cr, almost half of the incremental provisions can be attributed to the general growth in loan book and standard asset provisions there on,” Siddharth Purohit, Senior Equity Research Analyst – Banking, Angel Broking, said in a note.

Angel Broking has kept its ‘accumulate’ rating on HDFC Bank, even as the provisions for bad loans at India’s largest private sector lender surged in the fiscal fourth quarter, saying that the rise is in line with the corresponding business growth.

“While in absolute terms, provisions have gone up by INR 546 Cr, almost half of the incremental provisions can be attributed to the general growth in loan book and standard asset provisions there on,” Siddharth Purohit, Senior Equity Research Analyst – Banking, Angel Broking, said in a note.

“INR 100 Cr of these provisions were related to the forbearance used in the previous quarter as per RBI’s notification. So if we look at the provision numbers from the qualitative perspective it has been in sync with business growth,” Purohit added.

Earlier today, HDFC Bank’s quarterly results showed that provisions rose substantially, as expected, especially following the Reserve Bank of India’s proactive approach in nudging the banks towards identifying areas of concerns. HDFC Bank’s provisions in Jan-Mar rose 76% quarter on quarter to Rs 1,261.8 crore from Rs 716 crore. The bank said that the provisioning consisted of a specific loan loss provision of Rs 978 crore and general provisions of Rs 280 crore.

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HDFC Bank’s shares made a new all-time high today after the bank reported that its Non-Performing Assets (NPA) remained stable in Q4 even as talks about the stress in the banking sector on account of bad debts and stressed assets has been gaining momentum. The bank’s shares hit Rs 1,499 on NSE after the release of quarterly results, rising 2.5% from the previous close.

HDFC Bank’s Gross NPAs remained flat quarter on quarter at 1.05%. Absolute gross NPAs were at Rs 5,885.7 crore, rising from Rs 5,232 crore in the preceding quarter. Its Net NPA rose marginally to 0.33% from 0.32% from the preceding quarter.

Angel Broking said that the stock of HDFC Bank is valued at three times its FY19 book value. “What is encouraging is that despite the impact of demonetization the bank has been able to maintain stable asset quality,” Purohit said.