HDFC Bank reported an inline quarter with NII/PPoP growth of 12%/14% YoY and PAT growth of 18% YoY to Rs 88.3 billion. Profitability came in strong despite creating an additional contingent provision of Rs 12 billion, thus taking the total buffer to ~Rs 78 billion (~0.65% of loans).

The bank witnessed a healthy pickup in business momentum as deposits/loans were up 4.5% QoQ each. Retail segment grew ~13% YoY while Commercial and Rural Banking grew robustly at 27.6% YoY. CASA deposits grew 29% YoY and the ratio now stands at 46.8% (+130bp QoQ).

On the asset quality front, GNPA/NNPA ratio improved by 12bp/8bp QoQ to 1.35%/0.4%, with slippages moderating to Rs 53 billion (1.8% of loans). On the other hand, the restructured book increased to 1.5% of loans (v/s 0.8% in 1QFY22), however higher provision coverage, along with a contingent provision buffer, provides comfort on asset quality.

Commenting on the result preview, Motilal Oswal Institutional Equities said, "Pick up in loan growth particularly retail would aid NII and margins which would drive profitability. Our estimates remain unchanged at 20% PAT CAGR over FY21-24E, with a RoA/RoE at 2.1%/18.3% in FY24E. Maintain Buy with a target price of Rs 2,000 (3.6x Sep'23E ABV)."

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