HDFC-HDFC Bank merger in 4-5 weeks; bank’s margin to drop, say analysts – Times of India

MUMBAI: The HDFC-HDFC Bank Ltd merger is just 4-5 weeks away and would result in lower net interest margin (NIM) for the lender this year, brokerages said on Thursday, a day after the management met analysts.
The bank expects NIM – a key profitability measure – to fall to 3.7%-3.8% in 2023-24 from 4.1% a year ago due to the merger, Nomura analysts wrote in a report.
However, lower credit costs and operating leverage will largely offset the impact, Nomura said, citing the management, which was represented by HDFC Bank CEO Sashidhar Jagdishan.
The Reserve Bank of India had in April given selective regulatory relief to HDFC Bank to smooth out the merger.
HDFC Bank’s management told analysts that the bank expects to maintain post-merger return on assets of 1.9% to 2.1% for 2023-24, as compared with 2.1% in the last financial year, as per a Macquarie note.
Post the merger, deposit mobilisation will continue to be a key area of focus for the bank.
At the meet, the management reiterated its plans to add over 1,500 branches every year for the next 4-5 years, as per analyst reports. A significant chunk of these will be in rural and semi-urban areas.
The bank remains confident about growing its deposits at 1.5-2x of industry growth going forward, while credit growth is seen close to the 5-year average of 19.5%, the management told analysts.
HDFC Bank is expecting corporate banking to compound at a steady pace, the management said, according to a Jefferies report.
The bank is looking at this space as an opportunity to leverage corporate relationships for deposits, transaction banking, among others, it said.