HDFC Bank Q1 net profit rises 34%

Higher interest income, lower provisioning on the back of improved asset quality aided growth.

HDFC Bank, the second-largest private sector bank in the country, today said its net profit for the quarter ended June 30 expanded 33.7 per cent to Rs 1,085 crore from Rs 812 crore a year ago. Higher interest income and lower provisions on the back of improving asset quality aided the bank's earnings growth during the first three months of this financial year.

Net interest income, or the difference between interest income and interest expense, was Rs 2,848 crore during the three-month period, up 18.6 per cent from a year earlier. Net interest margin of the bank was steady at 4.2 per cent.

“Our net interest margin has been in the range of 3.9-4.3 per cent for last few quarters. As of now, it appears fairly stable at the current level. We expect the interest margin to remain in this broad range for some more quarters,” Executive Director Paresh Sukthankar said in his post-earnings comments.

Non-interest income of the bank grew 13 per cent annually to Rs 1,120 crore. Fees and commissions were up 15.9 per cent from a year ago to Rs 923 crore, and was the primary contributor to non-interest income.

HDFC Bank incurred Rs 41.3 crore mark-to-market loss in its bond portfolio, as yields rose in the first quarter. The bank had made a gain of Rs 21.5 crore in this portfolio in the corresponding period of last year.

The private lender reduced its provisions to Rs 444 crore in April-June from Rs 555 crore a year ago, as asset quality improved. Gross non-performing asset ratio fell 17 basis points to 1.04 per cent, while the net bad loan ratio improved 10 basis points to 0.18 per cent.

Despite a reduction in provision, the loan loss coverage ratio, excluding write-offs, was at 83 per cent as of June 30, higher than the regulatory requirement of 70 per cent. Total restructured assets were 0.4 per cent of the bank’s gross advances.

Gross advances expanded 29.1 per cent from a year ago and 9.7 per cent sequentially to Rs 1,76,964 crore. Retail loans were up 28.6 per cent year-on-year to Rs 83,863 crore as of June-end. Net advances growth slowed to 20 per cent from a year ago to Rs 1,75,000 crore.

“The outlook on asset quality is fairly stable. We have historically grown our loan book a few percentage points higher than the industry growth rate. So, it is reasonable to expect 3-5 per cent delta over industry credit growth this year also. It is tough at this point to give specific guidance on the growth number,” Sukthankar said.

Total deposits of the bank were at Rs 2,11,151 crore as of June 30. The share of low-cost current account savings account deposits was 49.1 per cent of total deposits.

Sukthankar said the bank’s slow deposit growth, about 15 per cent, was due to its decision to restrain from raising high-cost wholesale and bulk deposits. Instead, HDFC Bank opted to raise Rs 3,650 crore of Tier-II capital.

The bank closed the last quarter with a capital adequacy ratio of 16.9 per cent. The Tier-I capital adequacy ratio was at 11.4 per cent as of June-end.

HDFC Bank shares fell during the day and closed 0.8 per cent down on the National Stock Exchange, in an otherwise strong broader market.

“While the bottom line is in line with market expectations, there are some concerns on the quality of earnings. Gross non-performing assets have deteriorated sequentially, growth in net advances has slowed down,” an analyst with a domestic brokerage said requesting anonymity, as he was yet to speak with HDFC Bank’s management after the announcement of earnings.