Mumbai: Private-sector lender HDFC Bank reported a 31% jump in quarterly profits on Tuesday, meeting forecasts, with earnings boosted by a rise in loans and higher fee income.
The New York-listed bank surprised with a net interest margin of 4.5% from 4% a quarter earlier, as it reduced dependence on higher interest bearing bulk deposits, but cautioned that the margin could not be sustained.
“The deposit rates were quite crazy last quarter and we consciously did not pick up high-cost deposits,” said Paresh Sukthankar, country head at HDFC Bank. “This (high margin) is a bit of an aberration which is not sustainable,” he said.
The bank opened more than 100 branches in the January-March quarter alone, which helped it access low-cost deposits. These rose to 55% of total deposits, against 50% in the first three quarters of the year.
Analysts were expecting a hit on the banks’ net interest margins, considering that the bank paid higher interests in an effort to boost deposits, but was slow in increasing lending rates.
Interest rates rose by 300 to 400 basis points in January-March over the same quarter in 2006 as the central bank raised rates to rein in inflation and increased provision requirements against lending, which also weighed on HDFC Bank.
The bank said net profit for the January-March quarter was Rs344 crore, up from Rs263 crore reported a year earlier.
A Reuters poll of analysts had forecast a 30% rise in net profit to Rs342 crore.
But the bank, which reported about 30% earnings growth for the 20th straight quarter, said provisions, mostly one-off, surged 81% to Rs330 crore, from Rs182 crore a year earlier.
This is following the central bank’s direction in January to double provisions to 2% on loans such as credit cards, personal loans and capital market exposure. The bank’s net profit for the year rose 31% to Rs1,142 crore.
Sukthankar does not expect the momentum of growth to slow for his bank, despite higher interest rates, and does not see a significant rise in bad loans. “There is a little bit of moderation in retail,” he said.
“Personal loans and other unsecured loans have higher defaults, but they are behaving well within our parameters.”
While its pre-tax profit from corporate lending jumped 400% to Rs257 crore, in retail banking it fell 33% to Rs213 crore, mainly due to provisions. At the end of March, the bank’s gross bad loans were 1.2% of assets, up marginally from 1.17% a year earlier.
Shares in HDFC Bank, valued at $7.6 billion, fell 11% in the March quarter, sharper than the 7.7% for the banking sector index.