HDFC Bank posts record profit, bad loans stable

By Devidutta Tripathy and Samantha Kareen Nair

MUMBAI (Reuters) - HDFC Bank Ltd, India's second-biggest lender by assets, made a record quarterly profit from higher interest and fee income and said retail and wholesale lending was growing.

The Mumbai-based bank, which was recently added to the central bank's list of lenders it considers "too big to fail", posted a net profit of 41.51 billion rupees ($634 million) for its second quarter to Sept. 30, up 20 percent from a year ago, and in line with analysts' estimates of 41.61 billion rupees.

With its focus on retail clients and relatively smaller exposure to segments such as infrastructure financing, HDFC Bank has the lowest bad loan ratio among top Indian lenders. That has made it an investor favourite in a sector marred by $146 billion of soured loans, which have choked fresh lending.

HDFC Bank has seen its loans grow at a faster pace than the sector average, and Deputy Managing Director Paresh Sukthankar said it was adding new clients as well as gaining market share with existing corporate borrowers, especially in the mid-sized segment which it brands as "emerging corporates".

"It tends to be much more of working capital, medium-term, loans, not much of long-term loans although there are a few. And it's essentially on the back of having gained market share," he told a news conference after the results.

"On the retail side we've seen pretty strong growth across products."

Wholesale loans grew 23.6 percent in the quarter, while retail loans grew 21.6 percent. That helped net interest income rise 22 percent. Non-interest revenue rose 24.3 percent, helping a steady core net interest margin of 4.3 percent, it said.

The bank's gross bad loans as a percentage of total loans were largely stable at 1.26 percent at end-September compared with 1.24 percent at end-June, although higher than 1.02 percent a year earlier. Provisions, including for loan losses, fell sequentially.

HDFC Bank said the regulator had made "certain observations" about a loan exposure to an unnamed borrower, which it had made as part of a consortium and was being restructured, adding it had made sufficient provisions even as discussions continue.

Shares in HDFC Bank closed 0.2 percent higher in a Mumbai market that gained 0.22 percent.

The stock has rallied 54.8 percent this year, outperforming the sector index that has risen 33.3 percent and the main market index that has added 24.7 percent.

($1 = 64.9625 Indian rupees)

(Reporting by Devidutta Tripathy and Samantha Kareen Nair; Editing by Himani Sarkar and Alexander Smith)