HDFC Bank's Q2 net rises 30%

Retail loan growth, stable margin drive earnings growth asset quality remains healthy

HDFC Bank, the country’s second largest private sector lender, on Friday reported its 52nd consecutive quarter of over 30 per cent rise in net profit.

The profit after tax for the quarter ended September increased 30.1 per cent from a year before to Rs 1,560 crore, aided by steady margin, higher interest income, and lower provisions.

“Our top line held up reasonably well. The major contributor was the net interest income, driven by loan growth and stable margin,” Paresh Sukthankar, executive director, told reporters in his post-earnings comments.
 

REPORT CARD

• Rs 1,560 cr profit after tax for the second quarter
• 26.7% rise of net interest income from a year earlier
• 10 bps improvement in net interest margin y-o-y, to 4.2%
• 22% growth in fees and commissions
• 0.2% unchanged figure of net bad loan ratio
• 0.9% improvement in gross non-performing asset ratio
• 45.9% share of low-cost CASA deposits at September-end
• 19% growth in deposits, to Rs 274,130 crore

Net interest income, the difference between interest income and expense, rose 26.7 per cent from a year earlier to Rs 3,732 crore. Net interest margin (NIM) improved 10 basis points year-on-year to 4.2 per cent during the quarter.

Fees and commissions grew 22 per cent, while foreign exchange and derivatives revenue rose marginally.

The bank incurred a loss of Rs 106 crore on sale of investments.

Asset quality remained healthy, allowing lower provisioning. While the gross non-performing asset ratio improved a tad to 0.9 per cent, the net bad loan ratio was unchanged at 0.2 per cent at the end of September.

Total restructured loans, including applications received and under process, were 0.3 per cent of gross advances. Sukthankar said while the bank witnessed some slippage in some of its retail loan products, it was below the lender’s internal estimates.

The provision coverage ratio was at 82 per cent at the end of the quarter.

Net advances were Rs 231,649 crore, up 23 per cent from a year before. The growth in advances was driven by higher disbursement of retail loans, as corporate credit demand continued to remain weak. The mix of loans between retail and wholesale segments was 53:47.

Deposits grew by close to 19 per cent, to Rs 274,130 crore. The share of low-cost current and savings account (Casa) deposits, net of one-off current account balances, was 45.9 per cent at the end of September.

Sukthankar said the bank would continue to grow its loans and deposits at a rate faster than the sector average. He expects NIM to remain in the range of 3.9-4.2 per cent in the coming quarters.

HDFC closed the July-September period with a capital adequacy ratio of 17 per cent. The shares ended at Rs 629.2 on the National Stock Exchange on Friday, up 0.7 per cent from the previous close.

“HDFC Bank has been able to consistently deliver high quality numbers, even when the entire industry has been witnessing pressure on asset quality and, hence, the stock has been one of the outperformers in recent times. However, with the economic growth environment mostly having bottomed out and the banking sector set for an upward re-rating over 12-18 months, in our view, it would be better to enter into banking stocks, which are trading at the lower end of their valuation cycle to maximise returns,” said Alpesh Mehta, vice-president of research (banking) at Angel Broking.