Mumbai: Lifted by higher income from fees and commissions that offset a steep rise in expenses and moderating consumer loan growth, HDFC Bank Ltd, India’s second largest private sector lender by assets, on Thursday posted an increase of 43.3% in net profit to Rs528 crore in the fiscal second quarter (Q2).
Earnings for the three months ended 30 September were also boosted by the contribution of Centurion Bank of Punjab Ltd, which merged with HDFC Bank earlier this year.
The bank’s net interest income—or interest earned on loans minus that paid on deposits—rose by 60.5% to Rs1,866.50 crore, driven by an average asset growth of 52.5%. Its net interest margin, or the difference between what it charged for loans and paid for funds, too widened marginally to 4.2 percentage points from 4 percentage points.
HDFC Bank’s total income, or interest and non-interest combined, surged 62% to Rs4,634.32 crore in the three months from Rs2,845.14 crore in the year-earlier quarter. Operating expenses jumped 69.44% to Rs1,386.71 crore.
Also See Strong Financials (Graphic)
Consumer loan growth has slowed as borrowing costs increased after rate hikes by the Reserve Bank of India (RBI), aimed at cooling inflation.
The central bank is now trying to ease a credit crunch by infusing money into the system amid turmoil in the financial markets.
“The bank has registered healthy profit numbers,” said a banking analyst at a Mumbai-based brokerage, who did not wish to be identified. “However, the advances growth has dipped to about 54% as against 64% in the previous quarter. Incremental addition to the advances book is just around Rs5,425 crore, which does not reflect very well for HDFC Bank.”
The analyst noted that despite the strong income growth, the bank’s operating expenses had increased substantially. “In such economic environment, high employee cost can have implications on the bank’s business ratios,” he said. The employee cost of the bank rose 47.83% in the second quarter to Rs611.63 crore, compared with Rs319.04 crore a year ago.
HDFC Bank stock lost 4.15% to end Thursday at Rs1,087.35 on the Bombay Stock Exchange (BSE) on a day when the bellwether equity index, the Sensex, fell 2.1%.
The BSE Bankex, which tracks leading banking stocks, rose marginally by 0.43% on the infusion of fresh liquidity into the financial system after RBI cut the proportion of deposits that banks must hold in reserve with the central bank. The move freed up Rs1 trillion that banks can use to lend and earn interest income.
At Thursday’s closing price, HDFC Bank’s market capitalization was Rs46,224 crore, marginally higher than the country’s largest private sector lender ICICI Bank Ltd’s.
Axis Bank Ltd, another large Indian private bank that announced its earnings early this week, saw its Q2 net profit growing by 76.8% to Rs402.91 crore.
HDFC Bank’s executive director Paresh Sukthankar admitted that its retail loan growth had seen some moderation. It grew about 25% —some 2-3% lower than in the previous quarter.
“We have been consciously going slow on some retail products. The high interest rate has also led to slowdown in retail credit,” he said.
The bank’s non-interest income brought in Rs643.10 crore during the quarter, driven largely by fees and commissions.
Its deposit base increased by 46.9% to Rs1.34 trillion. Savings account deposits grew by 46.6% to Rs32,794 crore and current account deposits were at Rs26,123 crore.
The current account-savings account (CASA) mix for the merged entity was around 44% of total deposits as on 30 September. CASA is a key to a bank’s profitability as it pays zero interest on current accounts and 3.5% interest on savings accounts. A higher CASA brings down the cost of funds for a bank.
Its capital adequacy ratio, or the ratio of capital to loan assets, fell to 11.4% from 14.9% a year ago, due to growth in the balance sheet. Sukthankar said the bank has enough headroom to raise fresh capital.
The gross non-performing assets (NPAs) ratio of the bank rose to 1.6% from 1.2% a year ago, and net NPAs ratio was up to 0.6% from 0.4% a year ago, reflecting higherdefaults in a rising interest rate and tight liquidity scenario.