The shares of HDFC Bank, once the darling of stock market, continued their downtrend on Friday even as most other banking stocks regained their lost ground with fresh buying at low level.

Global investment advisory firm Bernstein has downgraded rating of HDFC Bank to ‘underperformer’ with the price target of ₹750 while shares of the bank were down 1.5 per cent to ₹881 on Friday. The broader Sensex gained six per cent, or 1,617 points, to 29,916.

In the current Covid-19 pandemic driven environment, Bernstein said HDFC Bank carries certain idiosyncratic risks and unique management challenges.

HDFC Bank’s portfolio is most exposed to unsecured consumer credit risk versus peer private banks. In fact, Kotak Mahindran Bank has been slowing down in growth and highlighting risks arising in consumer loans. HDFC Bank’s subsidiary HDB Financial services also could pose challenges during this time, given the focus on weaker informal income segments, it said.

Further, the bank’s non-proactive handling of the management succession so far, could impact the bank’s preferred status amongst the investor community.

Lesser impact

Covid-19 will have a non-trivial impact on the Indian economy, even though the outbreak intensity so far does not point to a Europe or US-like scenario, it added. But given the population size, density, community awareness, quality of infrastructure and global inter-linkages, Indian businesses will still undergo disruption. Consequently, banks are likely to face operational and credit quality challenges.

For the next fiscal, it expects earnings growth to slow down to sub-15 per cent growth. The succession challenges likely to impact its premium valuation multiples.

Quoting a conference call with the HDFC Bank management, an UBS research report said trends in unsecured retail asset quality are stable with 80 per cent of the unsecured loans are to salaried employees. Repayments continue to remain healthy currently.

On the SME portfolio, the bank does not expect significant impact on asset quality as 70-75 per cent of SME loans are secured.

Limited exposure

Bank has limited exposure to airlines, restaurants and hospitality business and believes the situation is too early to comment on, it said.

Credit card spends remained healthy in the last two months but have reduced in March. In case of complete lock-down, the bank expects a decline in customer spending.

With the current turmoil in domestic and global markets, the bank’s scrip too has remained volatile. It closed below the ₹1,000-mark on BSE on March 17 at ₹975.1 apiece. It touched a 52-week low of ₹795.15 apiece on BSE on March 19.

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