gem worth investing - HDFC BANK


HDFC Bank, the second largest private bank in India, trades at a premium to other larger private and public sector banks due to its ability to sustain its superior financial track record, especially in areas such as net interest margins, return ratios, profit growth and asset quality, irrespective of the interest rate scenario.

Going forward, the bank is expected to continue its robust organic growth ? 42 per cent, 40.5 per cent and 31 per cent in advances, net interest income and net profit respectively, reported in the past four years.

Its recent acquisition of the relatively smaller private bank, Centurion Bank of Punjab, should help expand its geographical reach. Its branch network would jump by 52 per cent to 1,148 branches, ahead of its larger peer ICICI Bank, with greater concentration in northern and southern states.

HDFC Bank's balance sheet size, total advances and total deposits will shoot up as well, by 37 per cent, 43 per cent and 43 per cent, respectively.

However, its CASA (current and savings bank account) ratio will decline from 58 per cent to 50 per cent, which will impact margins, while its overall asset quality is also expected to be impacted slightly.

However, these concerns are only short-term in nature and should be offset on account of the long-term benefits from better synergies, rationalisation of employee and branches as well lower expenditure on technology.

Also, CBoP's dominant position in the retail (two-wheelers and cars) and SME (small and medium enterprise) segments, distribution of third-party products and substantial non-resident client base will strongly complement to that of HDFC Bank.      

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