 "HDFC Bank's bad loan jumps, margin narrows post-merger, Q2 profit up 50.6%")
HDFC Bank’s net profit rose by 50.6 per cent year-on-year (Y-o-Y) to Rs 15,976 crore in the July-September 2023 quarter, according to its financial results revealed on Monday. But these figures are not directly comparable because of the merger of HDFC Ltd into the bank on July 1 this year.
Still, net income topped analyst expectations of Rs 14,120 crore in a Bloomberg survey.
The merger had a noticeable impact on India’s largest private sector bank’s asset quality, which deteriorated because of bad loans among the non-individual loans of the erstwhile HDFC Ltd. The net interest margin also narrowed as HDFC’s liability book of around Rs 5 trillion offered a higher interest rate.
Gross NPA as a percentage of gross advances increased to 1.34 per cent as on September 30, 2023, from 1.17 per cent on June 30.
On the day of the merger — July 1 — the ratio was 1.41 per cent, which later came down due to net reductions.
Srinivasan Vaidyanathan, chief financial officer of HDFC Bank, said: “22 bps of 1.34 per cent — which is the erstwhile HDFC’s non-individual book — is performing but because it has been restructured; according to the extant guidelines, this has been classified as NPA.”
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The net interest margin, which stayed above 4 per cent for many years, declined to 3.4 per cent on total assets in the July-September period. This was mainly due to higher cost of funds of HDFC Ltd.
“Our margin over a longer period has been around 4-4.1 per cent. Now, when you have a debt-funded balance sheet that is merged… they have borrowings in the mix of funding, the cost of borrowing is higher than the cost of deposits. We expect the deposits will replace borrowing over a period. Our credit-to-deposit rate is 107 (per cent), as compared to 85 (per cent) before the merger,” said Vaidyanathan during the post-earnings media call.
“The cost of the fund differential is almost 250 bps,” he further said. About Rs 5 trillion worth of borrowings of HDFC were merged with the bank.
The net interest income during the quarter under review grew by 30.3 per cent to Rs 27,385 crore; other income was Rs 10,708 crore vis à vis Rs 7,506 crore during the same period a year ago. Other income got a boost because of a mark-to-market gain of Rs 1,041 crore during Q2, against a loss of Rs 387 crore in the year-ago period.
Provision and contingencies for Q2FY24 was Rs 2,904 crore, against Rs 3,240 crore a year ago. The total credit cost ratio was 0.49 per cent versus 0.87 per cent a year ago.
HDFC Bank added Rs 1.1 trillion in deposits during the September quarter -- an increase of 29.8 per cent Y-o-Y.
The share of current and savings account deposits, which are the low-cost deposits, in total deposits slipped to 37.6 per cent from 42 per cent before the merger.
Total deposits with the bank trailed total advances after the merger. Total advances were Rs 23.54 trillion (Rs 1.1 trillion was added during the quarter) versus Rs 21.73 trillion of deposits.
Retail loans grew by 112.1 per cent, while commercial and rural banking loans increased by 29.5 per cent. Wholesale loans, excluding non-individual loans of HDFC, which were around Rs 1.02 trillion, grew by 7.9 per cent.
Following the merger with HDFC, retail loans constitute 53 per cent of the overall book, which was 47 per cent in Q1. The wholesale-retail loan mix has reversed following the merger.