HDFC, Axis saw issue of loans grow more than average in the Dec quarter, but interest earnings are still sticky.
Credit growth is back in the private banking sphere. The December 2009 quarter saw both HDFC Bank and Axis Bank reporting credit (loan) growth ahead of the system, which grew at about 11 per cent year-on-year. However, the low interest rate environment, less-than-fast pace of credit growth and competitive pricing of loans by PSU banks has taken its toll on interest earned this quarter for both banks.
The banks have amassed Casa (low-cost demand deposits- current account, savings account) in this liquidity-flush environment, fortifying themselves against interest rate hikes. With high-cost term deposits being repriced, net interest margins (NIMs) have seen a boost. Fee income surprised on the upside but treasury income was muted, as expected, given the expansion in government bond yields.
HDFC Bank reported a 10 per cent dip in interest earned this quarter, in spite of credit growth of over 20 per cent, year-on-year. However, the abundant liquidity has pushed down the cost of funds, which boosted net interest income (interest earned minus expended) for the quarter, which grew by over 12 per cent year-on-year to Rs 2,224 crore. The bank reported NIM of 4.3 per cent, backed by the growth of its Casa base and repricing of high-cost term deposits. Casa deposits made up 49 per cent of all deposits, expanding 900 basis points year-on-year.
Non-interest income, however, also dipped 9 per cent in the quarter, hurt by a Rs 26-crore loss in its treasury portfolio. Fee income, however, clocked in a 12 per cent year-on-year gain and along with an Rs 154-crore gain on its forex and derivative portfolio, pumped up the bottom line. A tight cap on operating expenses, down nearly 300 basis points to about 47 per cent of net revenue, and lower provisioning, also played a role in boosting net profits to Rs 818 crore, up 32 per cent year-on-year. Portfolio quality was stable and gross Non-Performing Assets (NPA) ratios fell by a shade, while NPA coverage improved to 72 per cent, above the RBI norm of 70 per cent.
Axis Bank reported more muted credit growth, though it was a little above the system at about 12.5 per cent, year-on-year. While interest earned was down marginally by about 3 per cent, net interest income grew about 45 per cent year-on-year to Rs 1,349 crore, helped by a 25 per cent decline in interest expenses. Other income was up 35 per cent, in line with expectations, boosted by a 30 per cent rise in fee income to Rs 800 crore and a sharper 50 per cent upswing in trading income to Rs 170 crore; the latter was surprising, given that bond yields had hardened during the quarter. Like HDFC Bank, Axis’ operating expenses fell by 11 per cent and helped boost net profit to Rs 656 crore, up over 30 per cent, year-on-year.
Provisioning costs, however, tripled in this period to Rs 373 crore and helped prop up NPA coverage to close to RBI norms, at 69 per cent, up from 63 per cent in the September quarter. Portfolio quality seems to have not improved much, as the gross NPA ratio stayed flat at 1.23 per cent. The bank has indicated that restructuring has peaked but was unwilling to comment on fresh delinquency in the quarter.
HDFC Bank closed flat at Rs 1,691 and trades at 3.2 times its consensus 2010-11 price to book value (P/BV) per share. Axis Bank closed up 1.5 per cent at Rs 1,078 and trades at about 2.5 times consensus P/BV.
