HDFC Bank Limited — FY2020 Form 20-F
Reporting period: Fiscal year ended March 31, 2020; this is an annual report, not a standalone 2019 fourth-quarter earnings filing. Financial statements are consolidated and prepared under U.S. GAAP unless noted. Amounts below are in Indian rupees (Rs.) billions unless stated otherwise.
Business context and key financial metrics
HDFC Bank is an Indian private-sector bank operating in retail banking, wholesale banking and treasury services, with subsidiaries in consumer finance and brokerage. Fiscal 2020 included a marked slowdown in the Indian economy and the onset of COVID-19 near year-end.
| Metric | FY2020 | FY2019 / change |
|---|---|---|
| Net revenue | Rs. 674.1 | Rs. 595.3; +13.2% |
| Net interest revenue | Rs. 593.5 | Rs. 507.5; +16.9% |
| Credit-loss provisions | Rs. 117.6 | Rs. 72.3; +62.7% |
| Net interest revenue after provisions | Rs. 475.9 | Rs. 435.2; +9.3% |
| Non-interest revenue | Rs. 198.2 | Rs. 160.1; +23.8% |
| Non-interest expense | Rs. 308.3 | Rs. 255.4; +20.7% |
| Net income attributable to HDFC Bank | Rs. 260.3 | Rs. 220.1; +18.2% |
| Net interest margin | 4.6% | 4.6% |
| Cost-to-net-revenue ratio | 45.7% | 42.9% |
| Return on equity / average assets | 15.1% / 1.9% | 15.5% / 1.9% |
At March 31, 2020, total assets were Rs. 15,961.9 billion (+20.2%); net loans Rs. 10,425.0 billion (+16.3%); and deposits Rs. 11,462.1 billion (+24.2%). Current and savings account deposits were 42.2% of deposits at year-end. Gross non-performing customer assets were 1.43% of gross customer assets and net non-performing customer assets were 0.52% of net customer assets. Total allowance for credit losses was Rs. 198.8 billion, or 126.3% of gross non-performing credit assets.
Capital adequacy was 18.52%, including a 16.43% Common Equity Tier I ratio. The Bank reported an LCR of 100% at March 31, 2020. Long-term debt was Rs. 1,026.5 billion and short-term borrowings Rs. 377.4 billion; securities sold under repurchase agreements were Rs. 508.0 billion.
Net cash provided by operating activities was Rs. 171.2 billion, versus Rs. 183.3 billion in FY2019. Investing activities used Rs. 2,150.5 billion, compared with Rs. 1,537.0 billion; financing activities provided Rs. 1,845.8 billion, compared with Rs. 1,517.5 billion. Cash and due from banks, including restricted cash, decreased Rs. 122.9 billion to Rs. 612.0 billion.
Material changes versus FY2019
- Credit-loss provisions rose substantially, driven mainly by retail lending and increases in both specific and unallocated allowances. Gross NPLs were broadly stable as a share of customer assets, while the reserve coverage ratio increased.
- Expense growth outpaced net revenue growth, raising the cost-to-net-revenue ratio to 45.7% from 42.9%; staff costs rose 24.7% and employees increased to 116,971.
- Interest expense on deposits increased 23.9%, reflecting deposit growth and a higher average deposit cost. Net interest margin remained 4.6%.
- Non-interest revenue benefited from higher fees and realized gains on available-for-sale securities. Foreign-exchange transaction income increased, while derivative gains fell to Rs. 3.6 billion from Rs. 12.4 billion.
- Income-tax expense declined to Rs. 105.5 billion from Rs. 119.4 billion, partly reflecting the lower statutory tax rate. The rate change generated an Rs. 11.2 billion deferred-tax charge; the effective tax rate fell to 28.8% from 35.1%.
Outlook, commentary, risks and unusual items
Management described the COVID-19 impact as highly uncertain. The report cited an estimated Indian GDP contraction of approximately 7.5% in FY2021. As of June 30, 2020, approximately 9% of the Bank’s loan portfolio by value was under a repayment moratorium. Management estimated fee and other related income was about Rs. 4.5 billion lower near FY2020 year-end versus the comparable prior-year period, and about Rs. 20 billion lower in FY2021’s first quarter versus the comparable prior-year quarter. These are management estimates, not full-year guidance.
The RBI barred further dividend payments from FY2020 profits pending further instructions. The Bank had paid a special interim dividend of Rs. 2.50 per share in August 2019 and proposed no final FY2020 dividend. The filing gives no specific FY2021 earnings or growth guidance. It lists planned FY2021 capital expenditure of approximately Rs. 25.4 billion, subject to business conditions.
Key risks include recession-related defaults and provisioning, unsecured consumer lending, exposure concentrations, interest-rate and foreign-exchange volatility, short- and medium-term funding dependence, competition, cyber and operational risks, regulatory requirements, and the consequences of the pandemic. The report also notes regulatory fines, including a Rs. 10 million RBI penalty in January 2020 for deficiencies in ongoing due diligence on 39 accounts, and an internal inquiry that found unauthorized commissions received by certain employees from a third-party GPS vendor. Management reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Whether pandemic-related moratoria, borrower stress and the FY2021 downturn lead to higher delinquencies, provisions or weaker asset quality.
- How credit-loss reserves and the planned FY2021 transition to CECL affect reported earnings and retained earnings; the filing expects a negative opening retained-earnings adjustment but does not quantify it.
- Whether deposit growth, funding costs, liquidity and capital remain resilient as the loan book and securities portfolio change.
- The status of the RBI’s FY2020 dividend restriction and any subsequent dividend decision.
- Whether reported performance is being compared on a consistent basis: this filing uses U.S. GAAP, while Indian statutory results use Indian accounting rules; share data were retrospectively adjusted for the September 2019 stock split.
- Progress on the Managing Director succession process; the filing states the incumbent’s term ended October 26, 2020 and RBI approval of a successor was pending as of the report date.