A very pertinent factor for a NBFC to source funding at competitive rates. However, cheap (~3.5% interest expense) retail deposits (~65% of the B/S liabilities ) are the main source of funding for HDFC Bank. Hence, not a very important factor to be considered.
Wholesale lending is forte of HDFC bank and it’s good that bank is harnessing such opportunities. Trend (both absolute and relative) of past NPA’s gives confidence that the management knows how to control risks for such a kind of lending.
HDFC’s cheap source of funding (deposits) ensures competitive rates (attracting more and more deals). In turn, the bank can earn NIM(~4%)/ROA(~2%) without chasing high yield and high risk lending opportunities. After that, leverage of 8~9x ensures ROE of 16~18%.
| Subscribe To Our Free Newsletter |
