Mumbai: Ahandsome increase in income from fees, commission and treasury operations has enabled HDFC Bank Ltd to post a 44.8% increase in net profit to Rs621 crore for the quarter ending 31 December.
Axis Bank Ltd, the first commercial bank to announce its quarterly earnings, had last week announced a 63.24% increase in quarterly net profit on robust growth in fee and trading income.
HDFC Bank, India’s second largest private sector bank, and Axis Bank have set the trend for the entire sector and most banks are expected to post handsome earnings based on their treasury income, analysts said.
“We are not highly dependent on treasury gains as compared with other banks. The growth in our net interest income has been good,” said Paresh Sukthankar, executive director, HDFC Bank.
Stable growth: Executive director Paresh Sukthankar says HDFC’s net interest income has been good / Bloomberg
Net interest income for the quarter ended 31 December increased by 37.7% to Rs1,979.3 crore. Its fees and commissions, the main contributor to the so-called other income for the quarter, rose by 40% during the quarter to Rs644 crore.
“Bank earnings are likely to show a robust growth during this quarter on account of reversal of mark-to-market (MTM) provisions...and treasury gains, due to a fall of around 350 basis points in benchmark yields across all maturities,” said a report by domestic brokerage Prabhudas Lilladher Pvt. Ltd. Hundred basis points equal one percentage point.
The report said State Bank of India, Bank of Baroda and Union Bank of India stand to gain the most on account of MTM reversals. MTM is an accounting practice of valuing financial assets by their market value and not the cost at which they are bought.
In a falling interest rate regime, banks gain as the prices of bonds rise. Yields and prices of bonds move in opposite directions. Indian banks are mandated to invest 24% of their deposits in government bonds.
Most, however, have a larger bond portfolio. They had to make provisions in previous quarters when bond yields rose, but the situation reversed in the December quarter.
However, not all analysts are bullish on banks in coming quarters. A banking analyst with a Mumbai-based brokerage, who did not want to be named, said provisions for non-performing assets, or NPAs, will rise across the sector. For HDFC Bank, provisions and contingencies for the quarter was Rs531.8 crore, against Rs423.1 crore in the year-ago period. Its NPAs rose to 1.9% from 1.2%.
HDFC Bank’s stock fell 1.17% to close at Rs977.35 on Wednesday while the benchmark index, the Sensex, rose 3.3% and Bankex, Bombay Stock Exchange’s banking index, rose 1.74%.
The bank’s net interest margin, or the difference between its cost of funds and earnings on deployment of such funds—a key indicator of a bank’s operational efficiency—has gone up marginally to 4.3% from 4.2% in the corresponding quarter last year.
“For over a year now, we have been able to maintain our margins at around the same levels. The favourable mix of our deposit base and less reliance on bulk deposits has reflected on our margins,” Sukthankar said.