Mumbai: HDFC Bank’s plan to raise 60,000 crore in infrastructure bonds and refrain from participating in a price war for deposit mobilisation will help it improve margins in the coming quarters, said analysts.
Unlike the 1-lakh-crore infrastructure bonds India’s most-valued lender inherited from the parent HDFC Ltd, the proposed bonds will not attract statutory relief, the company officials said during the media call last Saturday, soon after declaring its fourth quarter results.
Effectively, the bank will not be required to set aside cash reserve ratio (CRR) and statutory reserve ratio on the infrastructure bonds. HDFC Bank absorbed HDFC’s 1 lakh crore infra bonds following the merger, effective July 2023. However, despite being classified as infrastructure bonds, RBI mandated the bank to set aside 4.5% CRR, which does not yield any returns, and invest 18% in sovereign bonds classified as SLR.
“HDFC Bank’s infrastructure bond raise is significant, which indicates a strategic move to bolster its capital base and potentially expand its lending activities, especially in infrastructure projects. It is possible that they may borrow the maximum percentage in infra bonds compared to AT1 and Tier 2 bonds,” said Venkatakrishnan Srinivasan, founder of Rockfort Fincap, which is into bond syndication and structuring.
HDFC Bank raised 2,910 crore at 7.65% in March and 7,425 crore at 7.71% last December as infrastructure bonds. If the bank can raise bonds at the same level and deploy them at 9-10%, it will positively impact the net interest margin. The bank’s net interest margin improved four basis points on a quarter-on-quarter basis to 3.44% in March 2024.
“While there was no explicit near-term guidance, management expects a steady improvement in NIMs in the medium term (2-3 years) on a change in product mix (towards high-yielding retail and SME loans) and replacement of high-cost liabilities acquired from erstwhile HDFC. Management is maintaining its focus on expanding the distribution network,” said a research report by Macquarie while maintaining a buy.
