5 reasons why HDFC Bank's results are not as bad as they look

However, there is no denying the fact that the bank has also been affected by the overall slowdown in economic activity

For the first time in a decade HDFC Bank posted its slowest quarterly growth. Though its profit numbers were above expectations, the fact that it grew at lower than the long term trend of 30% was enough to push the stock down which closed at the day’s low at Rs 651.40, down 2.37% over the previous day’s close. 

 

However, on closer look, the results are better than expected, though there is no denying the fact that the bank has also been affected by the overall slowdown in the economic activities.

Here are five reasons why the third largest bank in the country has performed better than expected. 

 

1. Net profit of the bank has increased by 27.1% to Rs 1,982.3 crore, but its profit before tax has increased by 31.7%. Net profit would have been higher but for an income tax surcharge effect which resulted in tax outgo rising by 41.8%. HDFC Bank paid tax at an effective rate of 33.94% in September 2013 quarter as compared to 31.53% in September 2012.

 

2. HDFC Bank’s profitability has been affected on account of mark-to-market losses from the treasury division. The bank has taken advantage of the recent change in RBI policy and has not amortized its losses, which is a prudent accounting policy. 

 

3. Despite overall deposit rate growing at 14.2% as compared to 16% growth in advances, HDFC Bank’s low interest bearing saving accounts have grown by 17.9%. This has helped maintain its current account and saving accounts (CASA) rate at 45%, higher than 44.7% in the previous quarter. High credit deposit ratio, resulting in costlier borrowing prevented the bank to pass on the benefit as a result its net interest margin (NIM) fell from 4.6% to 4.3%. With short term interest rates falling, NIM can move higher going forward.

 

4. Cost to income ratio of the bank has improved to 46.4% as compared to 50.2% last year, reflecting more efficient running of the bank.

 

5. Though growth in advances in both retail and wholesale segment has slowed down, HDFC Bank has not let its guard down which is captured in its non-performing asset at the net level being largely constant.