Business context and reporting period
HDFC Bank Limited filed this Form 20-F for the fiscal year ended March 31, 2021. Although the request identifies “2020 Q4,” the filing provides annual results, not standalone fourth-quarter financial statements; it does report that India’s GDP grew 1.6% year over year in the fourth quarter of fiscal 2021. The bank operates retail banking, wholesale banking and treasury businesses, and reports these financial statements under U.S. GAAP. Amounts below are in Indian rupees (Rs.) unless stated otherwise.
Key financial metrics
| Metric | FY2021 | Comparison / context |
|---|---|---|
| Net revenue | Rs. 782.4 billion | Up 16.1% from Rs. 674.1 billion |
| Net interest revenue | Rs. 683.7 billion | Up 15.2%; interest revenue rose 5.3% while interest expense fell 4.2% |
| Net interest margin | 4.4% | Down from 4.6% |
| Provision for credit losses | Rs. 154.2 billion | Up 31.1% from Rs. 117.6 billion |
| Net interest revenue after credit-loss provisions | Rs. 529.5 billion | Up 11.3% |
| Net income attributable to HDFC Bank | Rs. 326.0 billion | Up 25.2%; basic EPS Rs. 59.27 |
| Return on average assets / equity | 2.0% / 16.1% | Compared with 1.9% / 15.1% |
| Total assets | Rs. 17,979.8 billion | Up 12.6% |
| Gross loans / net loans | Rs. 12,043.7 / 11,700.2 billion | Gross loans up about 13.4% |
| Total deposits | Rs. 13,337.2 billion | Up 16.4%; current and savings accounts were 46.1% of deposits |
| Long-term debt / short-term borrowings | Rs. 1,174.8 / 239.3 billion | Long-term debt up 14.4%; short-term borrowings down 36.6% |
| Cash and due from banks, including restricted cash | Rs. 930.7 billion | Up 52.1% |
| Operating / investing / financing cash flow | Rs. 921.8 / (2,521.1) / 1,918.4 billion | Net cash increased Rs. 318.7 billion to Rs. 930.7 billion |
| Capital adequacy / CET1 | 18.79% / 16.85% | Regulatory minimum total capital ratio was 11.075% |
| Gross non-performing loans | 1.8% of gross loans | Up from 1.5%; gross non-performing customer assets were also reported at 1.7% of gross customer assets |
Material changes versus the prior year
- Net income and net revenue increased, while net interest margin declined as asset yields fell. Average retail and wholesale loan yields were 10.9% and 7.2%, respectively, versus 11.4% and 8.5% a year earlier.
- Non-interest revenue rose 27.6% to Rs. 253.0 billion. AFS securities gains increased to Rs. 53.0 billion from Rs. 16.7 billion, largely from realized gains on government securities; foreign-exchange revenue also increased. Derivatives recorded a net loss of Rs. 3.3 billion, versus a gain of Rs. 3.6 billion.
- Non-interest expense rose 11.1% to Rs. 342.6 billion, but declined to 43.8% of net revenue from 45.7%.
- Asset quality weakened: gross non-performing loans increased to Rs. 213.8 billion from Rs. 157.4 billion. The loan allowance reached Rs. 343.5 billion, including the impact of the new accounting standard.
- Deposits grew faster than loans; savings and current account balances increased, while short-term borrowings and repurchase-agreement liabilities declined.
Outlook, risks, contingencies and unusual items
- COVID-19 and outlook: Management cited continuing uncertainty from the pandemic’s second wave, borrower stress and possible effects on credit demand and collections. It estimated Indian GDP growth of 9.1% and average inflation of 6.0% for fiscal 2022; these are management estimates, not company earnings guidance.
- Credit accounting change: HDFC Bank adopted CECL on April 1, 2020. The adoption increased credit-loss allowances by Rs. 83.5 billion, with a Rs. 62.5 billion after-tax reduction in retained earnings. FY2021 provisions and year-over-year comparisons should be read in light of this change.
- Restructured loans: COVID-related restructured loans outstanding were Rs. 138.4 billion at March 31, 2021, mostly retail. The filing says interest continued to accrue on term loans during the moratorium.
- Technology and regulatory restriction: Following digital-channel outages, including a November 2020 outage attributed to a power failure at the primary data center, the RBI’s December 2020 order temporarily halted launches under Digital 2.0 and other proposed business-generating IT applications, and sourcing of new credit-card customers. A third-party systems audit was completed and submitted to the RBI; the bank said it awaited further communication. The filing describes capacity and resilience improvements.
- Conduct and legal matters: The RBI imposed and the bank paid a Rs. 100 million penalty in May 2021 concerning marketing and sale of third-party non-financial products to auto-loan customers, following employee misconduct involving GPS-vendor commissions. A U.S. securities class action filed in 2020 remained pending; the bank said it intended to defend itself. Other legal claims included Rs. 10.2 billion of indirect-tax and other claims not acknowledged as debts; management did not expect these proceedings to have a material adverse effect.
- Regulatory lending shortfalls: FY2021 priority-sector lending achievement was 38.16% against a 40% target, with shortfalls in agriculture and other sub-targets. The bank said a July 2021 government decision to restore retail and wholesale trade as eligible MSMEs might affect the FY2021 calculation, for which it was seeking clarification.
- Liquidity and capital: The minimum liquidity coverage ratio was 90% at March 31, 2021 and returned to 100% from April 1, 2021. Management described capital and liquidity as strong. Planned fiscal 2022 capital expenditure was approximately Rs. 22.8 billion.
- Dividend: The board recommended Rs. 6.50 per equity share for FY2021; shareholders approved it in July 2021. Future dividends remain subject to capital, regulatory and other considerations.
Most important facts for investors to verify
- Confirm that comparisons use the audited U.S. GAAP figures and account for the CECL adoption and its opening allowance adjustment.
- Track quarterly loan delinquencies, restructurings, credit-loss provisions and recoveries, especially in retail, consumer, agriculture and pandemic-affected sectors.
- Check whether the RBI lifted the digital-business and new-credit-card sourcing restrictions after reviewing the systems audit, and monitor subsequent service outages.
- Review deposit growth and mix, liquidity coverage, funding maturities, capital ratios and the effect of the return to a 100% minimum LCR.
- Follow the resolution and potential financial impact of the U.S. securities lawsuit, regulatory matters and the priority-sector lending shortfalls.
- Distinguish recurring fee and interest income from securities gains, foreign-exchange results and other market-sensitive items.