On Sept. 04, 2017, Reserve Bank of India (RBI) added HDFC Bank in the list of India’s domestic systemically important banks (DSIB). Systemically Important Banks (SIBs) are perceived as banks that are ‘Too Big To Fail’. Domestic SIBs are critical for the uninterrupted availability of essential banking services to the country’s real economy even during the crisis.
The positive side of being recognized as a systemically important bank is that investors would feel more secure in parking bulk funds in these institutions as they are too big to fail. (SBI and ICICI Bank were also named to the list in 2015).
At the current market of 932 Rs., Here are the 5 Logical Reasons why you should Buy HDFC Bank stock ‘Right Now’ for ‘Long Term’.
1. Strong Financials and Network
A few days back I discussed 10 Useful tools to Analyze Banking Stocks, based on that HDFC has strong financials in all aspects.
Based on the annual report of the 2019 annual report, here are some outlines.
- ₹21,078 Cr. net profit (an increase of 20.5% compared to the previous year)
- ₹1,244,541 Cr. Balance sheet (an increase of 17.5% compared to the previous year)
- ₹923,141 Cr. Total Deposits (an increase of 17.5% compared to the previous year)
- ₹819,401 Cr. Total Advances (an increase of 24.5% compared to the previous year)
- 17.1% Capital Adequacy Ratio
- 1.36% (of Gross Advances) as Gross NPA
- 5,103 Banking Outlets
- 13,160 ATMs
- 2,748 Cities/Towns
HDFC Bank has been ranked “India’s Most Valuable Brand” topping a list of over 500 leading brands across 37 categories.
2. Covid impact highly uncertain
As India’s most valuable lender held a call with analysts after announcing quarterly earnings of March 2020, the focus was on the MSME exposure, and a stress test at the lender showed that 9% of this portfolio is vulnerable, likely leading to a maximum impact of 50 basis points on the bank’s asset quality.
In its stress test, the bank also concluded that the floating provisions plus countercyclical provisioning of ₹4,500 crore, of which ₹1,550 crore is toward Covid-19, were appropriate at this juncture and if required, it would utilize the existing buffer provisions built over the last few years.
No Dividend: HDFC Bank will not pay any dividend to its shareholders after the Reserve Bank of India asked the banks to not do so. RBI is of the view that banks must conserve capital in an environment of heightened uncertainty caused by Covid-19.
On comparing with the top 10 some of the best private-sector lenders, HDFC bank topped the list and delivered the highest returns in last 5 years (86.41%). Between 2016 and 2020, the stock surged more than 200% (490–1280 Rs.).
4. Lower Bad loans Vs Industry Average
On one side, the entire banking industry is fighting with higher bad debts but HDFC is making its own ways. Gross non-performing assets (NPA) for the March 2020 quarter eased to 1.26% from 1.42% in the December quarter and 1.36% in the year-ago quarter.
5. Confidence of Big brokerage houses.
Post Yes Bank crisis, not just investors but depositors also became extra cautious while choosing the bank to put their lifetime savings. Being an analyst I believe in numbers and based on everything I researched about HDFC bank I can simply say that long term investors should keep this stock in their stock portfolio.
Hope this was informative.
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