@Hemant_Kumar2 : Thanks for a quick primer on bank basics.
In my opinion, valuations are baking in below negative surprises and management’s intent to not highlight these while talking about the positives of the merger:
- To fulfill banking regulations, some of the incoming loans of the merged HDFC required extra provisioning and downsizing.
- Incoming loans of the merged HDFC have high cost liabilities that will suppress the earnings till they mature. Their amount and duration will be known when FY24 AR is published.
- Loan/Advances growth has outpaced deposit growth. The same is not sustainable. Management has made it clear that they will not chase growth (high cost wholesale deposits to fulfill loan demand) at the expense of profitability (compressed NIMs).
In the near term, price inaction might wear out one’s patience since all the above would lead to slower earnings growth and milder return ratios compared to the bank’s historical benchmark.
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