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Investors Cheer As HDFC Bank Continues Steady Run Of Earnings Growth

HDFC Bank Ltd. reported strong growth in profits in line with market expectations even as provisions increased more than forecast.

Net profit rose 18.2 percent to Rs 3,990 crore from Rs 3,374.2 crore in the corresponding quarter last year, according to the bank’s filing on the stock exchanges. The performance was in line with consensus estimates of analysts tracked by Bloomberg, which stood at Rs 3,940 crore.

Reflecting slower growth in the industry, HDFC Bank reported the second consecutive quarter of sub-20 percent profit growth. The private lender had reported its lowest ever quarterly profit growth of 15 percent in the October-March period. Credit growth in the banking sector fell to a six decade low of 5 percent in fiscal 2017.

Net interest income at the bank rose 21.5 percent to Rs 9,055.1 crore, surpassing analysts’ forecast of Rs 8,647 crore. Net interest margin improved to 4.3 percent from 4.1 percent in the October-December quarter. Growth in advances was steady at just below 20 percent, with growth spread equally over the retail and wholesale segments.

The growth in advances was split evenly between retail and corporate loans, though the growth in the latter has been primarily through working capital loans, said Paresh Sukhthankar, deputy managing director at HDFC Bank.

Asset Quality Performance

Gross non-performing assets (NPAs) in absolute terms rose 12.5 percent to Rs 5,855.7 crore compared to Rs 5,232.3 crore in the quarter-ended December. In percentage terms, the gross NPA ratio was flat at 1.05 percent of the loan book. The net NPA ratio, too, remained stable at 0.33 percent against 0.32 percent.

Provisions, however, spiked 76.3 percent to Rs 1,261.8 crore compared to Rs 715.8 crore. The bank has accounted for Rs 245.21 crore worth of loans as NPAs in March-ended quarter after the end of a dispensation window provided by the Reserve Bank of India. Under this window, the RBI had allowed small borrowers an additional 90 days to make repayments on outstanding loans to help tide over the demonetisation period.

“Provisions and contingencies were up around 550 crore sequentially. Of this 270 crore was on general provisions for standard assets, reflecting the strong growth in advances during the quarter,” said Sukhthankar.

The provisions for bad loans that were not recognised in the third quarter resulted in higher provisions worth Rs 100 crore, he said.

Manish Ostwal, Senior Research Analyst, Nirmal Bang Securities   The asset quality remains stable. Overall loan book growth of 19 percent is strong, even better than street estimates. We don’t see any material changes in our estimates. However, any comments on the margin or corporate loan book may lead to marginal changes. 

Other Highlights

  • Advances increased 19.4 percent year-on-year to Rs 5,54,568 crore.
  • Domestic loan portfolio grew 23.7 percent to Rs 5,38,642 crore.
  • Domestic retail loans grew 26.6 percent, while wholesale loans rose 20.7 percent.
  • Fee income saw a robust 16.1 percent growth
  • The cost-to-income ratio which had increased to 44.7 percent in the December-ended quarter improved to 42.4 percent.
  • Total capital adequacy ratio stood at 14.6 percent as per Basel III guidelines.
  • The board recommended a total dividend of Rs 11 per share for the financial year 2016-17.

Separately, the board of HDFC Bank approved the issue of up to Rs 50,000 crore via the issue of either perpetual bonds, Tier II capital bonds and long term infrastructure bonds.

The stock gained 2.6 percent and closed at a fresh lifetime high of Rs 1499.80 per share.