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HDFC Bank awaits farm loan waiver details after higher Q1 provisions

Experts warn that waivers could distort credit culture, pile up pressure on India's banking sector

Reuters  |  Mumbai/Bengaluru 

HDFC Bank
HDFC Bank

Ltd said it was waiting for details on farm loan waiver plans announced by several states, after recording higher provisions driven by delinquencies in its agriculture loan book over the first quarter.

Four key states including Uttar Pradesh, which has a population around the same size as Brazil's, have recently said they would waive off billions of dollars in farm loans to offer relief to farmers reeling from losses caused by bad weather.

While the state governments will absorb the impact of the waivers, industry experts warn this could distort credit culture and pile up pressure on India's banking sector where bad loans hit a record $150 billion in December.

Bank, India's No 2 lender by assets, on Monday said sour loans to the farming sector accounted for about 60 per cent of the increase in its gross non-performing loans during the three months to June, leading to higher provisions.

"We believe that a fair portion of this impact does reflect changed customer behaviour in anticipation of loan waivers which were announced," the bank's deputy managing director, Paresh Sukthankar, told reporters at a briefing after the company posted a 20 per cent rise in its quarterly profit. Most other loan portfolios remained in line with past quarters, he added.

"We'll have to see how things pan out in terms of there being clarity on what are the waivers and what therefore are customers, farmers, going to be able to repay," he said.

For the three months to June 30, reported a net profit to 38.94 billion rupees ($605 million), versus 32.39 billion rupees a year ago, but slightly short of an estimate of 39.38 billion rupees from analysts polled by Thomson Reuters.

Gross non-performing loans as a percentage of total loans rose to 1.24 per cent at end-June, from 1.05 per cent at end-March, and 1.04 per cent a year earlier.

Provisions for bad loans surged about 61.4 per cent from a year earlier to 13.43 billion rupees in the June quarter.

The money set aside by the for bad loans was a little more than what was required by the regulator, Sukthankar said, adding that the gross non-performing loan ratio recorded in June was "certainly at the higher end".

He declined to give a specific guidance for loan growth for the year, but said the had seen healthy growth in both retail and the wholesale segments.

With its consistent profit growth and strong focus on retail, has stood out among Indian lenders which are battling slower loan growth and a surge in soured assets. It has grown loans at a much faster pace than the industry average and has the lowest bad loans among the country's leading

Shares of the bank, valued at more than $68 billion, closed up 1.9 per cent. The stock has risen over 40 per cent this year, outperforming the main market index and the sector index.

 

First Published: Mon, July 24 2017. 20:00 IST
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