BENGALURU: India’s largest private lender HDFC Bank has warned about its merger with HDFC Ltd key financial metrics, including margins, would be affected poor credit ratioscausing shares to fall 4% on Wednesday, dragging the blue-chip Nifty 50 with it.
HDFC Bank’s gross bad credit ratio is expected to rise to 1.4% by July 1 post-merger, compared to a standalone 1.2% in the June quarter, while excess liquidity on account of the merger will will reduce the lender’s net interest margins by approximately 25 basis points. points.
The bank announced the outlook during an analyst meeting earlier this week.
HDFC Bank is expected to report its first consolidated earnings results next month, although no date has been announced yet. The two companies merged on July 1, creating a $40 billion behemoth.
The warning on non-performing assets was prompted by a sharp increase in bad loans in the former home financier’s corporate loan portfolio, Nomura analysts wrote in a note, downgrading the shares from “buy” to “neutral.”
The bank’s NIMs could also be under pressure over the next two to three quarters, Nomura added, cutting NIM estimates by around 25 basis points for FY2024 and by 15 to 20 basis points for FY25-26 .
“The key risk is lower longer-term profitability as a result of the merger,” Macquarie analysts wrote.
Analysts also expect equity returns to decline and see the stock struggling over the next twelve months.
About 11.6 million HDFC Bank shares changed hands in early trade on Wednesday, against a 30-day average of 21.1 million.
Shares of HDFC Bank have fallen 3% so far this year, underperforming the 6% gain in the banking index and the 11% gain in the Nifty index.
HDFC Bank’s gross bad credit ratio is expected to rise to 1.4% by July 1 post-merger, compared to a standalone 1.2% in the June quarter, while excess liquidity on account of the merger will will reduce the lender’s net interest margins by approximately 25 basis points. points.
The bank announced the outlook during an analyst meeting earlier this week.
HDFC Bank is expected to report its first consolidated earnings results next month, although no date has been announced yet. The two companies merged on July 1, creating a $40 billion behemoth.
The warning on non-performing assets was prompted by a sharp increase in bad loans in the former home financier’s corporate loan portfolio, Nomura analysts wrote in a note, downgrading the shares from “buy” to “neutral.”
The bank’s NIMs could also be under pressure over the next two to three quarters, Nomura added, cutting NIM estimates by around 25 basis points for FY2024 and by 15 to 20 basis points for FY25-26 .
“The key risk is lower longer-term profitability as a result of the merger,” Macquarie analysts wrote.
Analysts also expect equity returns to decline and see the stock struggling over the next twelve months.
About 11.6 million HDFC Bank shares changed hands in early trade on Wednesday, against a 30-day average of 21.1 million.
Shares of HDFC Bank have fallen 3% so far this year, underperforming the 6% gain in the banking index and the 11% gain in the Nifty index.
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