Robust 1st quarter results for HDFC Bank

Net profit rises 31% on loan, fee income growth

HDFC Bank, the country’s second largest in the private sector, has reported a 30.6 per cent increase in net profit to Rs 1,417 crore for the quarter ended June, as compared to Rs 1,085 crore a year earlier, on the back of robust loan growth and higher fee income.

Loan growth of 21.5 per cent has helped its net interest income, or the difference between interest income and interest expense, to post a 22.3 per cent growth to Rs 3,484 crore during the three-month period.

The net interest margin improved sequentially as well as year-on-year, by 10 basis points to 4.3 per cent.

Commenting on the loan growth projection, Aditya Puri, managing director, HDFC Bank said, “Loan growth is a function of GDP growth. It’s generally 2.5 times the GDP growth. We’ll grow two per cent more than the system.

The bank also reported other income growth of 36.6 per cent, as it received more fees and commissions, gained from sale of investments, earned revenues from foreign exchange and derivative deals. Income from fees and commissions grew 24 per cent to Rs 1,143 crore.

Profit from sale of investment of Rs 66.5 crore also helped the bottom line, as it had reported a loss of Rs 41.3 crore on this in the corresponding period last year.

Foreign exchange and derivative revenues were Rs 315 crore, up 37 per cent year-on-year.

“The results were in line with the estimates. Higher non-interest income via fee income and foreign exchange gains compensated for the higher provisioning requirement,” said broking firm Emkay Global Financial Services.

Operating expenses increased 25.7 per cent to Rs 2,433 crore, as the bank expanded its network and paid more salaries. The cost-to-income ratio expanded to 49.2 per cent at the end of June 2012, from 48.3 per cent a year before.

Asset quality, liabilities
The bank made higher provisioning during the quarter, though credit quality remained steady from a year ago. Provisions were up 10 per cent from a year earlier, at Rs 487.3 crore, including specific, general and floating provisions of Rs 475 crore.

The net non-performing asset ratio remained steady at 0.2 per cent, while the gross bad loan ratio improved marginally by seven basis points to 0.97 per cent. Total restructured loans, including applications received and under process for restructuring, were 0.3 per cent of gross advances.

According to brokerage firm Motilal Oswal, the restructured loans due remain one of the lowest in the industry.

On the liabilities side, the deposit base expanded by 22 per cent to Rs 257,531 crore, with 18.4 per cent growth in savings deposits and 7.4 per cent in current account deposits. The share of low-cost current account/savings account deposits continued to be on the higher side, at 46 per cent of total deposits.

Regarding capital requirement under the new Basel-III norms, Puri who was speaking at the sidelines of the bank’s annual general meeting, said, “The bank is capitalised enough for the Basel-III norms, however RBI guidelines for Basel-3 are bit stringent and the bank would require some capital to fulfil those.”

He also said the chances of a rate cut from the central bank is low, “Looking at the current economic situation, I don’t think that RBI will reduce key rates.” RBI will announce its first quarter review of monetary policy on July 30.

The bank’s shares closed one per cent up at Rs 586 on the National Stock Exchange.