HDFC Bank, following its merger with HDFC, anticipates strong Q3 profits on the back of substantial loan growth. The bank expects a net profit of INR 14,780 crore, marking a 39.4% YoY increase, and a Net Interest Income (NII) of INR 28,089.9 crore (INR 1 = $0.012), a 33.6% YoY rise. This forecast comes in spite of facing net interest margin (NIM) pressures due to post-merger excess liquidity and new Reserve Bank of India (RBI) Cash Reserve ratio regulations.

These pressures led Nomura to downgrade the bank’s stock and reduce its NIM forecast from 2.7% in Q1 to 2% in Q2. The bank’s RoA is also projected to decline, mirroring its stock’s 6.18% loss over the past month and the Nifty Bank index’s negative returns of 3.51%.

The merger boosted CASA deposits by 7.6% YoY and gross advances by an impressive 57.7%, although the CASA ratio dropped to 37.6%. Meanwhile, Gross Non-Performing Assets (NPA) are expected to rise to 1.4%, with Net NPA forecasted to reach 1.3%.

Analysts have highlighted several downside risks for HDFC Bank including non-recovery of NIM/RoA, tepid loan growth, and sharper than estimated NIM impact due to repo rate cuts in FY25e. These factors could potentially widen the gap in operating metrics compared to competitors.

There was also a significant change in HDFC Bank shares worth INR 720 crore noted recently. Detailed implications of this change remain to be seen as investors and market watchers closely monitor the bank’s performance in the coming months.