HDFC Bank flags hit to asset quality, margins post merger; shares slide

BENGALURU: India’s top private lender HDFC Bank has warned that its merger with


would hit key financial metrics including its margins and

bad loan ratios

, sending shares down 4% on Wednesday and dragging the blue-chip Nifty 50.
HDFC Bank’s gross bad loan ratio is expected to have increased to 1.4% as of July 1 post-merger, from a standalone 1.2% in the June quarter, while excess liquidity from the merger is seen dragging the lender’s net interest margins down about 25 basis points.
The bank provided the outlook at an analyst meet held earlier in the week.
HDFC Bank is expected to report its first consolidated earnings next month, though a date has not been announced yet. The two companies merged effective July 1, creating a $40 billion behemoth.

The warning on non-performing assets was prompted by a sharp rise in bad loans in the erstwhile housing financier’s corporate loan book, Nomura analysts wrote in a note, downgrading the stock to “neutral” from “buy”.
The bank’s NIMs could also see pressure over the next 2-3 quarters, Nomura added, cutting NIM estimates by about 25 basis points for fiscal year 2024 and 15-20 basis points for FY25-26.
“Key risk is lower profitability over longer term due to the merger,” Macquarie analysts wrote.

Analysts also expect a hit to return on equity and see the stock struggling over the next 12 months.
About 11.6 million HDFC Bank shares changed hands in early trade on Wednesday, versus a 30-day average of 21.1 million.
HDFC Bank shares are down 3% so far this year, underperforming 6% gains in the bank index and 11% gains in the Nifty index.

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