HDFC Bank net profit up 20.5% on hight retail loans, other income

The overall set of good numbers was also driven by net interest income and operating profit as also stable asset quality despite higher provisions and tax expenses.

However, the recent aggressive rate posturing has hurt the Aditya Puri-led bank's margins, which slipped its lowest range of 4.1 percent.

It can be noted that this is the tenth consecutive quarter that the country's most-valuable lender with a market capitalisation of over USD 42 billion has been reporting sub-30 percent growth in net profit, after clocking 30 percent plus growth for 30 quarters in a row.

While the banking system led by public sector banks, which control four-fifths of the asset base has been reporting tepid credit growth that has been averaging in single-digits since the past many quarters, the lender has reported a more than expected asset growth which clipped at 27.9 percent, in the reporting quarter, driven by retail loans as corporate loans are still a far cry.

Gross bad loans as a percentage of total loans fell to 0.91 percent from 0.95 percent in the June quarter.

The aggressive 65 basis points reduction in the base rate to 9.35 percent since April, which no rival has matched so far, weighed on net interest margin that fell to 4.2 percent in the reporting quarter from 4.3 percent in the previous three months. The current NIM is closer to the lowest end of the bank's NIM target of 4.1-4.4 percent.

Deputy MD Paresh Sukthankar attributed the slip in the margins to a slew of factors, including the 0.35 percentage points reduction in the base rate and a faster growth in fixed deposits which resulted in the share of the low-cost Casa deposits falling below 40 percent in many years.

Reiterating their NIM target band, Sukthankar sought to drive the message that this does not mean that the margins will dip in the future as well.

The lower margins will help the bank as more deposits start getting repriced according to lower interest rates, he said, adding the bank will also be reviewing its base rate this quarter where it may opt for a cut given the declining interest environment.

But Angel Broking analyst Vaibhav Agrawal expects the bank to recoup some of the lost margins in the coming quarters. He also has buy call on the stock.

Similarly, brokerage Emkay Research described the

earnings in-line with estimate and commended the stable asset quality. Yogesh Mehta of Motilal Oswal Securities also said the numbers are as per their estimates.

HDFC Bank counter closed flat with a negative bias at Rs 1,094.80 from last close on the BSE, whose main index Sensex shed 17 points. The stock has gained over 6 percent in the September quarter and about 15 percent this year, outperforming both the Bankex and the Sensex.

The bank's core net interest income grew 21.2 percent to Rs 6,680.9 crore, while the other clipped higher at 24.7 percent to Rs 2,551.8 crore on handsome gains in fee and treasury incomes in a declining interest rate environment.

The lower interest rates helped the lender grow its advances by 27.9 percent, while deposits grew over 29 percent.

Sukthankar, however, made it clear that such high growth may not be true for the entire year and there are some seasonal factors which prompted higher growth.

The bank bought a record Rs 2,869 crore of loans from its parent HDFC during the quarter and Sukthankar said this constitutes almost 70 percent of the loans it has sold.

Earlier, the bank used to pick up only around 40 percent of loans which qualified as priority sector lending, but now it is doing even the non-PSL part.

Retail loan book grew faster and now it occupies 52 percent of the overall asset book, he said, adding the bank doesn't see a massive movement in the composition of its book.

He said a revival in the capex cycle may boost wholesale demand, but refused to give a timeframe for that.

The urban areas, which account for 45 percent of its over 4,000 branches, delivered a faster credit pick-up, Sukthankar added.

Asset quality remained stable though provisions for bad loans jumped 49.4 percent to Rs 681.3 crore but declined 6.4 percent sequentially.

Asset quality has improved during the quarter with gross non-performing assets falling 4 basis points q-o-q and 11 bps y-o-y to 0.91 percent. Net NPA also slipped to 0.25 percent from 0.27 percent in Q1 and 0.28 percent a year ago.

In absolute terms, the gross NPAs rose 4.8 percent q-o-q and 13.9 percent on annually to Rs 3,827.8 crore, while net NPAs also rose 13 percent y-o-y and 1 percent q-o-q to Rs 1,037.7 crore.

Total provisions rose to Rs 681.29 crore from Rs

455.89 crore and Sukthankar attributed this to specific loan loss provisions which grew to Rs 481 crore from Rs 384 crore and added last year's numbers included a Rs 30-crore drawing from floating provisions. This year, it has allocated Rs 50 crore in floating provisions to the buffer, he added.

On the recent issues surrounding the Bank of Baroda case, Sukthankar said this will not have any impact on its fee income and claimed that the bank's internal systems have "largely worked" but refused to elaborate further on the actions and changes it has taken internally following the scandal.

Growth in net interest income, which is the difference between interest earned and interest paid, was driven by strong advances that surged 27.9 percent to Rs 4,18,541 crore, while deposits rose 29.7 percent to Rs 5,06,908.7 crore. Total income rose to Rs 17,324.3 crore from Rs 13,894.7 crore, while operating expenses rose to Rs 4,189.8 crore, including Rs 1,492.2 crore in taxes. Other income rose to Rs 2,551.8 crore, up 27.6 percent.