Five takeaways from HDFC Bank results

HDFC Bank, the first among the bigger banks, has announced its results. Against a steady net profit growth of 30% for a number of quarters, the bank posted a 23% growth in its net profit at Rs 2,326 crore against market expectation of Rs 2,372 crore. There was little impact on the stock price after the announcement as the stock has fallen in the recent past after the bank was denied permission to increase FII stake. 

 

Following are the five key takeaways from HDFC Bank's results:

 

1. A pleasant surprise in HDFC Bank's numbers, which is unlikely to been seen in other bank results, is the reduction in gross NPA from Rs 3017.84 crore in December 2013 to Rs 2989.28 crore. Net NPA, however, in absolute terms has increased from Rs 797.34 crore to Rs 820.03 crore during the same period, both being 0.3% of the net advances.

 

2. Provisions too have come down to Rs 286.13 crore as compared to Rs 388.84 crore. Provisions and gross NPA along with the fact that restructured loans account for only 0.2% of gross advances signal the strong balance sheet of the bank. 

 

3. The bank has become more efficient operationally with its cost to income ratio in the quarter coming down to 45.7% as compared to 51.4% during the same period last year. 

 

4. Though retail loans still account for 53% of all advances, HDFC Bank in the March 2014 quarter saw growth coming in from wholesale banking. Advances increased by 26.4% during the year while deposits increased by 24%. Low cost current and savings accounts (CASA) amounted for 44.8% of the bank's deposits. Access to these low cost funds and deployment in high yielding retail loans is the primary reason why HDFC Bank is able to generate high net interest margin of 4.4% as compared to 4.2% in the previous quarter.

 

5. There are however, some signs of stress in the numbers. Operating profit before provision and contingencies stood at Rs 3,779 crore as compared to Rs 3,888 crore. Lower tax provision when compared with previous quarter has resulted in HDFC Bank posting a net profit of Rs 2326.5 crore as against Rs 2325.7 crore in the previous quarter.

HDFC Bank has been enjoying a high premium with respect to other banks because of its better asset quality and a steady profit growth of nearly 30%. While asset quality continues to remain strong, profit growth despite cost cutting and lower retail growth are areas of worry.