Mumbai: HDFC Bank Ltd, India’s No.2 private sector lender, posted a 33% rise in quarterly net profit on Tuesday, meeting estimates, helped by strong credit demand in a fast-expanding economy.
Demand for loans in Asia’s third-largest economy, which the International Monetary Fund expects to expand 9.7% in 2010, is expected to remain strong in the coming quarters.
The Reserve Bank of India (RBI) sees non-food credit growth of banks at 20% in 2010-11, still a far cry from the pre-crisis growth rates of above 30%.
HDFC Bank and its rivals State Bank of India, the country’s largest state-run lender, and top private-sector lender ICICI Bank are seeing an improvement in asset quality on strong revival in business and consumer confidence.
However, rising interest rates are a concern as they may put the brakes on the rapid loan demand growth, especially from retail borrowers, and thereby weigh on the banks’ profitability.
The bulk of Indian banks’ profits is made through pure banking activities.
The RBI has raised key lending rates five times by a total of 125 basis points since mid-March and with annual headline inflation in September at 8.62%, above the RBI’s comfort zone of 5-6%, expectations for another increase have gained strength.
A majority of economists expect the RBI to raise rates by a quarter of a percentage point by end-2010 and once more by end-March 2011, when the current fiscal year ends.
HDFC Bank, which is also listed in New York, said its net profit in July-September, its fiscal second quarter, rose to Rs 912 crore ($206 million) from Rs 687 crore in the year ago period.
A Reuters poll of brokerages had projected net profit at Rs 914 crore.
Gross advances grew by 37.7% from a year ago to Rs 1.59 trillion as at end-September, the bank said. Shares in HDFC Bank, which the market values at $25 billion, ended 1.4% lower at Rs 2,365.60 ahead of the results in a main Mumbai market that dropped 0.9%.
The stock has risen by 39% so far this year, in line with a rise in the banking sector index and more than a 14% jump in the benchmark index.