HDFC Bank Limited Ratings Reaffirmed
Rating Action
*With warrants &Transferred from erstwhile Housing Development Finance Corporation Limited (HDFC) Note: All the transferred instruments from HDFC to HDFC Bank Limited are unsecured in nature Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. 1 crore = 10 million Refer to annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+' ratings on the existing debt instruments of HDFC Bank Limited (HDFC Bank).
CRISIL Ratings has also withdrawn its rating on non-convertible debentures aggregating Rs 18,203 crore (See ‘Annexure - Details of Rating Withdrawn' for details) in line with its withdrawal policy. CRISIL Ratings has received independent verification that these instruments are fully redeemed.
The ratings continue to reflect the established market position of the bank, and its healthy capitalisation, supported by strong asset quality, comfortable resource profile and robust earnings performance.
Post consummation of the amalgamation of HDFC, with and into HDFC Bank, HDFC Bank has further strengthened its market position with total gross advances of Rs 25.08 lakh crore as of March 31, 2024 (Rs 16.14 lakh crore as of March 31, 2023).
The capital adequacy remains comfortable marked by a networth of Rs 4,40,246 crore and Tier 1 and capital adequacy ratio (CAR) of 16.8% and 18.8% respectively as on March 31, 2024. Asset quality remains strong with gross non-performing assets (GNPAs) of 1.24% (Rs 31,173 crore) as on March 31, 2024 as against 1.12% (Rs 18,019 crore) as on March 31, 2023.
Earnings profile was impacted to some extent, due to higher overall cost of funds, given that share of current and savings account (CASA) deposits reduced to 38.2% as on March 31, 2024 from 44.4% as on March 31, 2023. However, the impact on return on assets (ROA) is partially offset by improvement in other income and lower tax expense (due to write-back of provision no longer required) |
Analytical Approach CRISIL Ratings has combined the financial and business risk profiles of HDFC Bank and its subsidiaries. CRISIL Ratings expects continued managerial and financial support to these subsidiaries and associates, given their strategic importance, majority shareholding and shared brand name.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
HDFC Bank is the largest private sector bank in India, with total assets of Rs 36,17,623 crore as on March 31, 2024 (Rs 24,66,081 crore as on March 31, 2023), and a share of around 15% and 12% in system deposits and advances, respectively. Advances (net) and deposits were Rs 24,84,862 crore and Rs 23,79,786 crore, respectively, as on March 31, 2024 (Rs 16,00,586 crore and Rs 18,83,395 crore, respectively, as on March 31, 2023). Retail advances (including agriculture) constituted 54% of total advances as on March 31, 2024 (44% as on March 31, 2023). The bank is a market leader in non-mortgage retail asset segments such as commercial vehicles and car financing. It has also been expanding its geographical reach over the past few years; and has set up new branches primarily in semi-urban and rural areas. As on March 31, 2024, the bank had 8,738 branches, up from 7,821 branches in the previous fiscal.
The bank is present in the broking business via HDFC Securities Ltd, which also operates as a third-party distributor of mutual fund products, insurance, initial public offerings, fixed deposits, bonds and non-convertible debentures. HDB Financial Services Ltd is a non-deposit-taking non-banking financial company, offering loans against property, commercial vehicle and construction equipment loans, and small and medium-sized enterprises financing; it had a loan book of Rs 90,218 crore as on March 31, 2024.
Aside from the above, HDFC Bank is now present in asset management, life insurance, general insurance, educational loans and investment advisory businesses through subsidiaries.
The bank has healthy capitalisation, underpinned by sizeable net-worth of Rs 4,40,246 crore as on March 31, 2024 (Rs 2,80,199 crore as on March 31, 2023). The overall CAR (under Basel III) was 18.80% as on March 31, 2024 (19.26% as on March 31, 2023). The capital position was further strengthened, with the bank raising Rs 23,651 crore as equity in fiscal 2019. Further, the bank raised USD 1 billion additional Tier I bonds (under Basel III) from overseas investors in August 2021. Also, steady internal accruals continue to support capitalisation.
Asset quality of the Bank remains strong, with overall gross non-performing assets (NPAs) of 1.2% as on March 31, 2024 (1.1% as on March 31, 2023), lower than the industry average. Low gross NPAs, along with a healthy provisioning cover of 74%, led to a strong coverage for asset-side risk, with net-worth coverage for net NPAs at 54 times as on March 31, 2024 (64 times as on March 31, 2023).
As on March 31, 2024, the Bank’s low-cost current and savings accounts constituted 38.2% (44.4% as on March 31, 2023) of total deposits. Additionally, the share of retail deposits remains healthy at around 84% as on March 31, 2024. Cost of funds[1] inched up to 5.8% for the period ended March 31, 2024 (3.9% for fiscal 2023) primarily on account of addition of HDFC’s liabilities post amalgamation which lowered share of low-cost deposits in the overall mix and partially due to high interest rate environment.
However, despite the decline in CASA share and increasing competition among banks for low-cost deposits, HDFC Bank is expected to maintain its comfortable resource profile over the medium term driven by its strong and established retail liability franchise. Further, the Bank is expected to gradually shore up their CASA base over the medium term.
The bank reported a net interest margin of ~3.6% for fiscal 2024 down from ~3.8% in fiscal 2023, due to increase in cost of funds with addition of HDFC’s borrowings. However, given the higher proportion of retail business, interest spread has remained better than industry levels for the bank. Aside from interest income, a healthy fee income, derived primarily from the retail business, should support profitability over the medium term. Return on assets[2] (RoA) was comfortable at 2.0% during fiscal 2024 (1.9% for fiscal 2023). CRISIL Ratings believes HDFC Bank is likely to maintain relatively high profitability, given its higher interest spreads and healthy fee income. [1] Cost of funds is calculated as: Interest expense for the period/average of borrowings and deposits at the start and end of the period [2] Return on assets is calculated as: PAT for the period/average of total assets at the start and end of the period |
Liquidity: Superior Liquidity remains superior, supported by a sizeable retail deposit base that forms a significant part of the total deposits. LCR stood at 116% for the Bank as on March 31, 2024. Liquidity also benefits from access to systemic sources of funds such as the liquidity adjustment facility from the RBI, access to the call money market and refinance limits from sources such as National Housing Bank and National Bank for Agriculture and Rural Development.
ESG Profile CRISIL Ratings believes that HDFC Bank Ltd’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.
The ESG profile for financial sector entities typically factors in governance as a key differentiator between them. The sector has reasonable social impact because of its substantial employee and customer base and can play a key role in promoting financial inclusion. While the sector does not have a direct adverse environmental impact, the lending decisions may have a bearing on the environment and other sustainability related factors.
HDFC Bank has an ongoing focus on strengthening various aspects of its ESG profile.
HDFC Bank’s key ESG highlights:
There is growing importance of ESG among investors and lenders. HDFC Bank’s commitment to ESG will play a key role in enhancing stakeholder confidence, given high shareholding by foreign portfolio investors and access to both domestic and foreign capital markets. |
Outlook: Stable CRISIL Ratings believes HDFC Bank should maintain its leading market position in the retail asset segment and its healthy capitalisation, while the strong resource profile will continue to support the earnings profile. |
Rating Sensitivity factors Downward factors
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About the Company Incorporated in 1995, HDFC Bank offers a wide range of banking services, including commercial and transactional banking in the wholesale segment, and branch banking in the retail segment, with focus on mortgage loans, car finance, business banking loans, commercial vehicle finance, credit cards, and personal loans. The bank acquired Centurion Bank of Punjab in May 2008. It has four overseas branches, one each in Bahrain, Kenya, Qatar and UAE, as well as three representative offices, one each in the Dubai, London and Singapore. Further, the bank also has an Offshore Banking Unit at International Financial Service Centre (IFSC), at GIFT City, Gandhinagar in Gujarat. |
Key Financial Indicators
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Any other information: As per the criteria for Tier-I capital (under Basel III), CRISIL Ratings evaluates the bank’s i) reserves position (adjusted for any medium-term stress in profitability) and ii) cushion over regulatory minimum common equity tier 1 (CET1; including CCB) capital ratios. CRISIL Ratings also evaluates the bank’s demonstrated track record and management philosophy regarding maintaining sufficient CET1 capital cushion above the minimum regulatory requirement. HDFC Bank’s eligible reserves to total assets was comfortable, with adequate CET1 capital buffer.
Key features of HDFC Bank's Tier-I bonds issue (under Basel III)
Note on Tier-I instruments (under Basel III) The distinguishing features of non-equity Tier-I capital instruments (under Basel III) are the existence of coupon discretion at all times, high capital thresholds for likely coupon non-payment, and principal write-down (on breach of a pre-specified trigger). These features increase the risk attributes of non-equity Tier-I instruments over those of Tier-II instruments under Basel III, and capital instruments under Basel II. To factor in these risks, CRISIL Ratings notches down the rating on these instruments from the bank's corporate credit rating. The rating on the bank's tier-I bonds (under Basel III) is lower by one notch from the bank's corporate credit rating, in line with CRISIL Ratings' criteria (refer to 'CRISIL Ratings’ rating criteria for Basel III-compliant instruments of banks').
Factors that could trigger a default event for non-equity Tier-I capital instruments (under Basel III), resulting in non-payment of coupon, include: i) the bank exercising coupon discretion, ii) inadequacy of eligible reserves to honour coupon payment if the bank reports low profit or a loss, or iii) the bank breaching the minimum regulatory CETI, including counter cyclical buffer, ratio. Moreover, given their additional risk attributes, the rating transition for non-equity Tier-I capital instruments (under Basel III) can potentially be higher than that for Tier-II instruments.
Note on Tier-II Instruments (under Basel III) The distinguishing feature of Tier-II capital instruments under Basel III is the existence of PONV trigger, occurrence of which may result in loss of principal to the investor and hence, to default on the instrument by the issuer. According to Basel III guidelines, PONV trigger will be determined by the RBI and is a remote possibility in the Indian context, given robust regulatory and supervisory framework and systemic importance of the banking sector. Inherent risk associated with the PONV feature is adequately factored into the rating on the instrument. |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
* yet to be issued & transferred from HDFC Limited (ISIN number reallotted with no change in ISIN details post amalgamation of HDFC ltd with and into HDFC Bank)
Annexure - Details of Rating Withdrawn
with warrants & transferred from HDFC Limited (ISIN number reallotted with no change in ISIN details post amalgamation of HDFC ltd with and into HDFC Bank) |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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