In good times and bad, HDFC Bank sticks to its 30 per cent profit growth. Delivering such growth, quarter after quarter, is a carefully crafted strategy. It’s a well known fact that the bank increases its provision cover for its loans, such that it can deliver 30 per cent growth in more challenging years. This strategy is evidently paying off this year. Though the net interest income has grown at 22.3 per cent in the first quarter compared to the corresponding one last year, the bank has managed to deliver a 30 per cent net profit growth.
The bank is nimble-footed enough to change its loan mix in different scenarios. With corporate India going through a difficult phase, the bank has increased the share of retail loans to 52 per cent now from under 50 per cent last year. Analysts say the bank is growing ahead of the sector across most retail segments. According to Emkay Global, the 33 per cent growth in retail loans year-on-year (YoY) and 4.4 per cent quarter-on-quarter was predominantly led by automobile loans (up 19 per cent YoY), commercial vehicles (60 per cent YoY), business banking (27 per cent YoY), home loans (up 23 per cent YoY) and personal loans (34 per cent YoY). These segments cumulatively account for 80 per cent of the retail loans.
Even as the rest of the industry is faced with deceleration in deposits, the bank has managed to grow its deposits by 22 per cent YoY and 4.4 per cent sequentially. The bank’s loan/deposit ratio has moved up by 360 basis points sequentially to 82.8 per cent. The low-cost current account-savings account deposits have also grown by 14 per cent YoY. Though the bank’s net NPAs are up 24 per cent annually and 12 per cent sequentially, Vaibhav Agarwal of Angel Broking says it has enough fire power to sustain a bottom line growth of 30 per cent even after provisions and a net interest income growth of 22 per cent.
Analysts say since the bank has created a buffer in good times, it would be able to deliver superior earnings even in difficult times. Would this kind of growth sustain in the years to come? Given that India’s nominal GDP growth is 12-14 per cent, analysts believe credit growth would be in 17-20 per cent. Given that HDFC Bank’s share in the banking sector is 4.3 per cent, there is enough room for growth. This effectively means the bank can grow at least 22-25 per cent for some more years. Agarwal says this kind of growth is driven by fundamentals and is no magic.