The concerns that have plagued the banking sector over the past few months have been, as expected, brushed aside by HDFC Bank Ltd, which reported a net profit of Rs 1,199.3 crore, an increase of 31.5% over the corresponding period of the previous year. The bank’s uncanny ability to keep its net profit growth at around 30%, come hell or high water, is well known and it maintained that track record for the September quarter. The market also had little doubt about that, as seen from the fact that the bank’s stock has outperformed the BSE Bankex in the last quarter, and as reflected in its premium valuations.
A file photo (Bloomberg)
Net interest income (NII) growth was 16.6% year-on-year (y-o-y), lower than 18.6% in the June quarter. But that slip was offset by a 26.1% rise in “other income”.
One big factor for the rise in “other income” was the fact that trading losses were Rs 50.8 crore lower than those in the year-ago period. Adjusted for trading income, the y-o-y growth in core operating profit would be lower.
Loan growth was 25.6% y-o-y, well above the growth in the banking system. Net interest margin (NIM), however, fell slightly to 4.1% from 4.2% in the June quarter. That was because current and savings deposits fell to 47.3% of the total deposits from 49.1% in the June quarter, as depositors took advantage of higher term deposit rates to shift deposits from current and savings accounts. Margins were, however, supported by a higher proportion of retail loans. The bank management says NIM would remain in the 3.9-4.2% range. That’s because it believes that lending and deposit rates have peaked. Paresh Sukthankar, executive director at the bank, pointed out in a press conference that the last policy rate hike by the Reserve Bank of India didn’t translate into a rise in deposit or lending rates across the system.
Graphics by Ahmed Raza Khan/Mint
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The other factor that buoyed net profit was a much lower need for provisions, which were lower by 19.5% compared with the year-ago period.
The bank’s asset quality has improved further during the quarter and net non-performing assets are a mere 0.2% of advances, down from 0.3% at the end of June. HDFC Bank’s loan growth has slowed, in tandem with the sector, and a cautious stance is desirable in the current environment. The management has said that there’s no demand for new project loans, so growth will be skewed towards the retail sector, as it was in the September quarter.
HDFC Bank can’t stay immune to the vagaries of the interest rate/asset quality cycle. But it’s likely to be less affected than other banks. Its reputation as a safe haven among banks enhances the appeal of the stock during challenging times.
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