Stress in small loans,note-ban cap HDFC Bank net at 18.3%

Second largest private sector lender HDFC Bank today reported a net of Rs 3,990 crore for the March quarter, but a marginal spurt in provisions for small-ticket loans limited profit growth to 18.3 per cent.
For the full year, the city-headquartered lender's consolidated net profit rose 19.2 per cent to Rs 15,253 crore.
The core net interest income grew 21.5 per cent to Rs 9,055.1 crore on a healthy 19 per cent rise in advances and a widening of margins to 4.3 per cent due to the note-ban driven spike in low cost deposits.
Driven by higher fees and commissions, non-interest income grew 27.6 per cent to Rs 3,446.3 crore.

But the bank continued to face stress in its assets for the second quarter in a row which was evident in the near doubling of total provisions to Rs 1,261.8 crore from Rs 662.5 crore a year-ago and at Rs 715.78 crore in December quarter.
Deputy managing director Paresh Sukthankar said there was a Rs 270 crore jump on a sequential basis on standard asset provisioning on account of increased loan book, while Rs 100 crore was set aside towards stress in small ticket-loans.

He said under a special dispensation after the note- ban, the Reserve Bank allowed banks to delay recognition of working capital loans under Rs 1 crore if at all they turned bad. Accordingly, HDFC Bank did not recognise non-payment as NPAs in the December quarter but did so in the March quarter.

An aggregate Rs 245.21 crore worth of loans were not serviced as of December, but around a third of them were paid back in the March quarter while the rest turned delinquent and hence provisions had to be done, he said, adding the special dispensation hasn't been availed of in the March quarter.
There was an additional provision of Rs 80 crore towards stress in the microfinance and agriculture sectors hit by the demonetisation. But despite these slippages, the bank maintained a stable gross non-performing assets ratio at 1.05 per cent and there were no divergences found by RBI in its books, which have dented profits for some of its peers.

Sukthankar said there has been an increase in delinquencies from retail loans which contribute 53 per cent of its assets, with the rest in corporates during the past two quarters, but it is not linked to demonetisation and are within the budgeted levels.
After two quarters of rising stress, the small businesses segment stabilised during the quarter, he said.
The key net interest margin rose to 4.3 per cent due to a surge in the share of the low-cost current and saving account deposits at 48 per cent as of March 31, which also resulted in a slowdown in fixed deposit growth to 7 per cent, while total deposits grew 17.8 per cent, Sukthankar said.

Stating that the Casa numbers are on the upswing generally, Sukthankar conceded that the present 48 per cent number is not sustainable going forward.
The bank bought Rs 4,500 crore of housing loans originated for parent HDFC during the quarter, resulting in an over 20 per cent growth in its home loan book for the fiscal and will maintain it at 70 per cent levels, he said.
Its exposure to the telecom segment flagged by RBI is under 2 per cent and Sukthankar said it will be formulating sector-specific provisioning policies soon.
Total capital adequacy stood at 14.6 per cent, with the core tier-I capital at 12.8 per cent, Sukthankar said, adding the bank is burning around 1 percentage point of capital per year and will be looking at raising money from the AT-1 route in the near future.

Cost-to-income ratio improved to 42.4 per cent from 44.9 per cent a year ago, thanks to excess liquidity.
The bank saw over 4,000 employees leaving it during the quarter, bringing down its total head-count to 84,325 end-March. In the December quarter too, close to 5,000 people left the bank, and Sukhthankar said they will continue to leverage on efficiencies from automation which is driving down the number, even as it hires for network expansion.
Its board also recommended a dividend of Rs 11 per share, up from Rs 9.5 in the previous year.
Analysts at domestic brokerage Motilal Oswal Securities termed the results as a positive surprise and attributed it to the "lower cost of funds which is helping the bank to remain extremely competitive and gain market share."

The HDFC Bank counter gained 2.38 per cent to close at Rs 1,496.75 on the BSE despite a dull market that saw the benchmark Sensex closing down 0.19 per cent.