BackHDFC Bank profit up 20% on higher interest income
Slowest pace of profit growth at the lender since 1999, slower than the 21% it reported in the previous quarter
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Mumbai: HDFC Bank Ltd, India’s second largest private sector lender, said second-quarter profit increased 20%, driven by interest earned from loans.
Net profit rose to ₹ 2,382 crore, or ₹ 9.8 per share, in the three months ended 30 September from ₹ 1,982 crore, or ₹ 8.2 per share, a year earlier. That compares with the ₹ 2,427 crore profit estimate of 35 analysts, according to a Bloomberg survey.
This was the fifth straight quarter the bank, known for its consistent 30% year-on-year profit growth, had reported a profit growth of less than 30%. It was the slowest pace of profit growth at the lender since 1999 and slower than the 21% it reported in the previous quarter, according to available records.
Net interest income (NII), or the core income a bank earns from giving loans, rose 23% to ₹ 5,511 crore from a year earlier.
Paresh Sukthankar, deputy managing director at HDFC Bank, said higher loan growth, better net interest margin (NIM) and hence better interest income were the main reasons for the increase in profit.
“Interest income dominates our bank’s book with 72-73% of income coming from loans, so you can say that it was the main reason for our profit. A better deposit mix and the fact that interbank borrowing costs were not as high as last year also helped," Sukthankar said.
HDFC Bank’s proportion of current and savings account deposits inched up slightly to 43.2% in the quarter ended 30 September from around 43% in the quarter ended June 2014.
NIM, or the difference between interest earned on loans and that paid on deposits, also widened to 4.5% from 4.3% in the corresponding period in September 2013.
Other income, or revenue earned through fees and commissions, trading and investments, grew at a slower 11% to ₹ 2,047 crore.
The bank’s loan book increased 22% to ₹ 3.27 trillion. Retail loans grew by 9.8% while wholesale loans increased 30.1%, HDFC Bank said.
Wholesale demand for loans was mostly from companies seeking funds for their working capital requirements while retail loan demand came from small businesses, personal loans and individuals looking to vehicles for their personal use.
Rajiv Mehta, an analyst at India Infoline Ltd, said a revival in demand for retail loans is good news for HDFC Bank because it has traditionally been strong in this segment.
“There was a time six-seven quarters ago that 56% of HDFC Bank’s loan book was retail. That ratio has since dropped to 53% as retail growth has moderated. Now, depending on how the economic growth pans out, if retail growth revives, then it would lead to higher yields on advances and hence higher interest income," Mehta said.
Sukthankar, however, said the bank is “not targeting" any specific growth rate, but is well placed to take advantage of the pick-up in the economy.
“There has been some pick-up in cars and two-wheelers, and the bad loans in commercial vehicles and commercial equipment have also stabilized in the last couple of quarters. We are in a sweet spot with stable asset quality. The worst is behind us," Sukthankar said.
Replying to a question on the possibility of HDFC Bank’s merger with its parent Housing Development Finance Corp. Ltd (HDFC), Sukthankar said the costs involved in the merger still make it expensive to execute.
A change in regulations earlier this year allows a bank to raise funds via long-term bonds for lending to infrastructure and affordable housing without maintaining the mandatory cash reserve ratio (CRR) and statutory liquidity ratio could potentially make it easier for the two lenders to merge.
Currently, banks must keep 4% of all deposits as CRR with the Reserve Bank of India—which earn no interest—and invest 22.5% of their deposits in government securities.
This was a major stumbling block for a merger of HDFC with HDFC Bank because it would have been expensive for the bank to take on its parent’s loans and deposits and then provide reserves for them.
Sukthankar, however, said a majority of loans of HDFC do not qualify for the exemption. “Less than half of HDFC’s loans qualify, which means while the pain (of the merger) has reduced...it has not gone away. This is something that is up in the air currently," he said.
Shares of HDFC Bank rose 0.12% to ₹ 895.90 on BSE, while the exchange’s benchmark Sensex gained 0.55% to 26,575.65 points.
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