HDFC Bank stock gains 2% after LIC gets RBI nod to buy 4.8% additional stake

It will take LIC’s stake in the private sector bank to 9.99 percent. The insurer has to complete the transaction by January 24, 2025

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The HDFC Bank stock, which has been under pressure after Q3 results, gained 2 percent to Rs 1,462 per share on January 29 after the Reserve Bank of India (RBI) allowed Life Insurance Corporation (LIC) to acquire an additional 4.8 percent stake in the lender, taking its stake to 9.99 percent.

The stock has crashed 14 percent after the private sector lender reported its December quarter results. Margin strain, fall in earnings per share (EPS) and slower-than-expected deposit growth have hit the sentiment.

The RBI allowed LIC to acquire the shareholding by January 24, 2025, the bank said in an exchange filing. LIC must also ensure that its aggregate holding does not exceed 9.99 percent of the paid-up share capital or voting rights of the bank.

ALSO READ: RBI allows LIC to acquire up to 9.99% stake in HDFC Bank

In the third quarter, HDFC Bank’s net interest income (NII) grew 4 percent on-quarter, led by a 4.9 percent sequential growth in gross advances, while its net profit was up 2.5 percent on-quarter supported by bulky treasury gains and favourable tax write-backs of Rs 1,500 crore.

Higher cost of funds, or borrowing costs, however, limited expansion in net interest margins (NIMs) for the banking giant, keeping them flat sequentially at 3.6 percent in Q3FY24.

Analysts at HSBC have a “buy” call on the lender but reduced the target price to Rs 1,950 from Rs 2,080, saying they see few levers for NIM expansion.

“We moderate NIM expansion to 15 bps (basis points) over FY24-26 versus 30 bps earlier. We expect near-term earnings to remain under pressure and cut earnings per share (EPS) by 0.8 percent/7.8 percent/5.8 percent for FY24/25/26,” the brokerage firm said.

The management believes that the bank is at the lower end of margin contraction spectrum and expects recovery to 3.7 percent in 18-24 months.

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