While the financial health of India's banks might be strong, there are challenges each one faces to build deposit growth and try and lend aggressively to improve net margins
India’s largest private sector lender HDFC Bank’s stock lost 11.2 percent in the past two trading days at the stock markets, dragging with it the Nifty Bank index by five percent and the overall stock markets by 2.58 percent. A range of factors, including flat margins at 3.4 percent for the bank, a significant drawing down of the LCR [liquidity coverage ratio] and loans outpacing deposit growth, resulting in a high credit to deposit (CD) ratio, have hurt the near-term earnings outlook for HDFC Bank, pushing the stock down 13.2 percent in 2024.
The Bank’s CASA (Current and Savings Account) ratio has also come under pressure post the mega-merger with HDFC, down to 37.9 percent in the December-ended quarter from 44 percent for the corresponding quarter a year earlier. This was the impact of term deposits added to the base.