HDFC Bank margin expansion contingent upon getting more retail deposits

Despite a 5% sequential growth in retail deposits in the December quarter sequentially, the ratio of retail to wholesale deposits is 45:55. A couple of years before covid-19, retail deposits were at 53-55% of the total. “So that mix needs to change for the margin to move up. Yes, we are cognizant that we need to keep up on the yield to keep pace with the rising deposit cost,” said Vaidyanathan.  

The bank’s core net interest margin was at 4.1% on total assets in the three months through December, unchanged from the previous quarter.  

 “When the deposit pricing goes up, we also increase the pricing on the assets. We have enhanced our marginal cost of funds-based lending rate (MCLR) more than the deposit. That means we are catching up on the asset yield also,” he said.    

According to Vaidyanathan, margin pickup is a function of a mix of products and to as deposit prices go up, asset prices also go up to keep the margin constant or within a within a small range. But the margin going into the middle to the higher end of the four 4.4-4.5% is a function of the mix of wholesale and retail, he said.

The bank’s total deposits were at ₹17.3 trillion of 31 December, up 19.9% over the same period last year. Its current and savings deposits or CASA grew 12%, with savings account deposits at ₹5.4 trillion and current account deposits at ₹2.3 trillion. Time deposits were at ₹9.7 trillion, up 26.9% over the corresponding quarter of the previous year, resulting in CASA deposits comprising 44.0% of total deposits as of 31 December.