HDFC Bank net up 20.6% to Rs 50 bn in Sep quarter; gross NPAs rise 1.33%

The bank's net interest margin stood at 4.3% during second quarter of the 2018-19 financial year

HDFC Bank on Saturday reported a 20.6 per cent year-on-year increase in its net profit to Rs 50.05 billion for the July-September quarter (Q2), a tad short of Bloomberg consensus estimate of Rs 50.33 billion. Operational parameters, however, remained healthy. The private sector lender had registered a net profit of Rs 41.51 billion in the year-ago quarter.

One factor that curtailed profit growth was other income, which grew by 11.3 per cent year-on-year to Rs 40.15 billion. Other income, which comprises non-interest revenue, was weighed down by a Rs 328 million loss on revaluation or sale of investments as compared to a gain of Rs 3.56 billion in the year-ago quarter. The core fees and commission income, which accounted for 82 per cent of other income, grew by 26 per cent year-on-year.

The net interest income (interest earned less interest expended) for the September quarter came in at Rs 117.63 billion, up from Rs 97.52 billion in the year-ago quarter, the bank said in a filing to the exchanges. The net interest margin stood at 4.3 per cent during the period, as against 4.2 per cent in the June quarter and 4.3 per cent in the year-ago quarter. “The spurt in margin, on a sequential basis, is due to the capital we raised,” said the bank in a call with analysts.

The bank’s asset quality for the September quarter was largely steady. The gross non-performing assets (gross NPAs) as a percentage of gross advances stood at 1.33 per cent as of September 2018, the same as at the end of June 2018 but 7 basis points higher than 1.26 per cent a year ago. 

The net NPAs, or bad loans, were at 0.4 per cent of net advances as on June 30, 2018, down from 0.43 per cent a year ago.

“HDFC Bank’s results were in line with expectations, with much stronger operating parameters, as compared to the recent past. Strong advances growth but stable asset quality is a clear standout in the present times,” said Lalitabh Shrivastawa, assistant vice president - research, Sharekhan.

The bank saw slippages of Rs 32.85 billion during the quarter, with pressure from the small and medium enterprises segment and certain retail products, said Sashidhar Jagdishan, chief financial officer, HDFC Bank.  

The bank’s business banking profile saw a spike of nearly 15 per cent in NPAs over the previous year’s quarter. However, Jagdishan said it was mainly due to the low base, and that the asset quality had been stable sequentially.

The provisions and contingencies for the quarter stood at Rs 18.2 billion, up 23 per cent as against Rs 14.76 for the year-ago quarter and Rs 16.29 billion in the previous quarter. HDFC Bank has a cushion of Rs 14.50 billion of floating provision, with healthy capitalisation levels, said Shrivastawa.

The bank’s deposits for the quarter grew 20.9 per cent to Rs 8,333 billion, while total advances grew by 24 per cent to Rs 7,508 billion over the year-ago quarter. Jagdishan said the focus on deposits was a key strategy for the bank. “It has helped in maintenance of a healthy liquidity coverage ratio at 118 per cent, much above the regulatory requirement,” he added.

The current account and savings account (CASA) deposits grew at 18.3 per cent year-on-year and formed 42 per cent of the total deposits as of September 30, 2018.

The bank maintained that it has a fair appetite for lending to non-banking finance companies (NBFCs) and has no concern on its exposure to the sector. The bank’s exposure to NBFCs, including housing finance companies, stands at 8 per cent of the total book.

The bank’s domestic retail loans grew by 23.8 per cent and domestic wholesale loans grew by 24.7 per cent. The domestic loan mix comprised 55 per cent of retail and 45 per cent of wholesale.

The cost-to-income ratio for the quarter was 39.9 per cent, as against 41.5 per cent for the year-ago period, indicating improved operating performance.

The Capital Adequacy Ratio (CAR) stood at 17.1 per cent, against 15.1 per cent as of September 2017.