HDFC Bank Q2 net up a fifth, asset quality stable

MUMBAI (Reuters) - HDFC Bank , India's second-biggest private sector lender by assets, reported quarterly net profit grew by a fifth and asset quality was stable as loans grew faster than expected.

Indian banks are battling slower credit growth and a surge in bad loans as companies and consumers have been squeezed by an economic downturn. While corporate loans have yet to revive, lending to individuals is growing at a faster pace.

HDFC Bank, with its stronger retail business and relatively smaller exposure to project finance has far lower bad loans than its bigger rivals and is seen as a better bet for investors.

The Mumbai-based lender said net profit rose to 28.69 billion rupees ($440 million) for its fiscal second quarter to Sept. 30, from 23.81 billion rupees a year earlier. Analysts on average had expected a net profit of 28.81 billion rupees, according to data compiled by Thomson Reuters.

Gross non-performing loans as a percentage of total loans fell to 0.91 percent from 0.95 percent in the June quarter.

Cuts in minimum lending rates to pass on policy rate reductions by the central bank weighed on net interest margin that fell to 4.2 percent in the September quarter from 4.3 percent in the previous three months.

HDFC Bank will likely recoup some of the lost margins in the coming quarters, said Vaibhav Agrawal, a sector analyst at Mumbai's Angel Broking. Agrawal, who considers the lender among his preferred stock picks, described its asset quality as "rock solid".

Net interest income for the quarter grew 21.2 percent to 66.81 billion rupees as loans grew about 28 percent - much faster than the industry. Non-interest revenue including fees and commissions grew a faster 24.7 percent.

Shares in HDFC Bank, India's most-valuable lender with a market capitalisation of more than $42 billion, were down 0.2 percent by 0743 GMT. The stock has gained more than 6 percent since the start of September and is up nearly 15 percent this year during which it has outperformed the NSE bank index and the broader Nifty.

($1 = 65.2000 Indian rupees)

(Reporting by Devidutta Tripathy; Editing by Muralikumar Anantharaman)