HDFC Bank shares extended their slide on Wednesday, falling over 7 per cent to hit a day’s low of Rs 1,553.25 apiece on the Bombay Stock Exchange (BSE).
At around 1:17 pm, shares of HDFC were down 7.25 per cent to Rs 1,557.20 apiece and were set for their worst day in nearly four years.
HDFC Bank shares fall after Q3 results
The decline comes after the country’s largest bank reported weaker margins for the second consecutive quarter in its Q3FY24 results, with analysts raising concerns about the same.
While the standalone net profit for the third fiscal quarter exceeded analyst predictions, the core net interest margin (NIM) on total assets dropped to 3.4 per cent from the previous quarter’s 3.65 per cent.
It may be noted that the bank’s NIM was above 4 per cent before it merged with its parent company, Housing Development Finance Corp (HDFC), in July last year.
Since the merger, HDFC’s increased borrowing costs and a lower-yielding loan book have impacted margins in the two reported quarters as a merged entity.
What brokerages say
Brokerage firm Jefferies highlighted the margin drop as a significant issue and suggested that boosting retail deposit mobilisation and lending would be crucial to improving NIMs. HDFC Bank is the first major bank to announce its earnings for the December quarter.
The massive drop in HDFC shares have triggered a bloodbath on Dalal Street, with Sensex plunging over 1,400 points and Nifty falling sharply to 21,632. Peers like Axis Bank, ICICI Bank, and Kotak Mahindra Bank also experienced declines ranging from 2.5 per cent to 3.5 per cent.
Meanwhile, brokerage firm Macquarie highlighted that improving NIM is essential for a positive re-rating of the stock.
Analysts also raised concerns about the bank’s deposit growth rate, with the loan-to-deposit ratio remaining high at 110 per cent post-merger. “The bank’s intention of driving deposit growth through branch addition is tough to execute given slow pace of branch addition and new branch locations being focused mainly outside Tier-1 centres that have low deposit potential,” analysts at Yes Securities said.