HDFC Bank Q1 profit lags, bad loans edge higher

MUMBAI (Reuters) - HDFC Bank Ltd, India's second-biggest private sector lender by assets, reported a smaller-than-expected increase in first-quarter profit due to higher provisions for bad loans.

Indian banks have been hobbled by a surge in bad loans in the past three years as slower economic expansion hurt the ability of companies to service debt.

The bulk of the industry's $49 billion bad loans sit with the dominant state-run banks, but private-sector lenders like HDFC Bank are also expected to see an increase in sour assets as they expand their market share, at a time when government banks are pulling back.

Mumbai-based HDFC Bank said net profit rose 20.7 percent to 26.96 billion rupees ($423 million) for its fiscal first quarter to June 30, from 22.33 billion rupees reported a year earlier. Analysts on average had expected a net profit of 27.39 billion rupees, according to data compiled by Thomson Reuters.

Gross non-performing loans as a percentage of total loans rose to 0.95 percent from 0.93 percent in the March quarter, although they were lower than the 1.07 percent reported in the year-ago quarter. Provisions for bad loans rose 30 percent from a year earlier, to 5.58 billion rupees.

Manish Ostwal, a banking analyst with Mumbai brokerage Nirmal Bang, said the rise in HDFC Bank's bad loans was "acceptable" given the current environment.

He said he did not expect bad loans to rise much further in the coming quarters at HDFC Bank, which typically does not have a big exposure to project finance -- hit by sectors like infrastructure -- and is more focussed on retail customers.

Net interest income for the quarter grew 23.5 percent to 63.89 billion rupees as loans grew an average of nearly 26 percent, HDFC Bank said. Non-interest revenue including fees and commissions grew a faster 33 percent.

Shares in HDFC Bank, which is India's most-valuable lender with a market capitalisation of about $44 billion, were down 0.3 percent by 0656 GMT in a Mumbai market that was little changed. The stock has so far this year gained more than 16 percent, outperforming the Bank Nifty and the benchmark Nifty.

($1 = 63.7350 rupees)

(Reporting by Devidutta Tripathy; Editing by Sunil Nair)