The bank has again managed to stick to the basics to keep profitability on track.
There is no wondering why HDFC Bank enjoys a premium in the market. The bank maintained its 30 per cent-plus growth in net earnings for the quarter ended June. Net profit rose 33.9 per cent year-on-year to Rs 811.7 crore. The bank managed to increase net interest margins from 4.2 per cent to 4.3 per cent in the quarter, even though analysts were skeptical as the cost of funds rose 18 basis points (due to the change in the way the interest rate on savings accounts is calculated).
Overall, net interest income grew 29.4 per cent on the back of growth in assets. One of the main reasons for the growth has been the bank's strong current account and savings account (Casa) base, which accounts for its low cost of funds and gives it a competitive position in the market place. Casa deposits grew a staggering 37 per cent in the June quarter over the previous year, taking the Casa share to 49.2 per cent. This is easily one of the best in the industry and a great operating lever, reckon analysts.
The management mentioned that gross advances grew around 40 per cent. Of this, about 10 per cent was due to short-term one-off movements in wholesale loans. Interestingly, retail loans grew 24 per cent and accounted for 51 per cent advances. Treasury income, which accounts for around 20 per cent of income, however, took a minor hit.
But asset quality remains strong with net non-performing assets (NPAs) accounting for 0.3 per cent of net advances and the NPA provision coverage ratio remaining strong at 77 per cent (excluding write-offs) — up from the 70 per cent levels in the same period of the previous year.
Therefore, in many ways, the premium position is justified, say analysts.
