During the December quarter, banks saw low loan growth, but a decline in deposit rates was expected to boost net interest margins (NIMs) and result in higher growth in net interest income. Trading profits, on the other hand, were expected to be weak, given the rise in bond yields over the period. There was some concern whether non-performing assets (NPAs) would rise as a fallout of the slowdown. And finally, it was known that some banks would have to make higher provisions to comply with new Reserve Bank of India regulations to have 70% provision cover for non-performing assets by September 2010. How does the initial crop of bank results measure up to these expectations?
The initial results have been very good, with Axis Bank Ltd, HDFC Bank Ltd and IndusInd Bank Ltd beating street expectations and both IDBI Bank Ltd and UCO Bank showing strong growth. Here’s how loans grew compared with the same quarter of the previous year: HDFC Bank 21%, Axis Bank 12.5%, IndusInd Bank 33%, IDBI Bank 21% and UCO Bank 22%. All of them except Axis Bank did better than the industry average.
Graphic: Yogesh Kumar / Mint
With good loan growth, net interest income growth too has been good. For HDFC Bank, net interest income growth was 12.4%, Axis Bank 45.12%, IDBI Bank 43%, UCO Bank 40% and IndusInd Bank a huge 104%. NIMs also improved: from 4.2% in the September quarter to 4.3% for HDFC Bank, from 3.5% in the September quarter to 4% for Axis Bank and from 2.86% to 2.94% for IndusInd Bank. IDBI Bank’s NIM, although very low at 1.59%, is well above the 1.07% it was during the September quarter.
Note that growth in net interest income was muted for HDFC Bank compared with others, despite good loan growth and improved NIMs. That’s because interest earned went down 9.7% compared with the same quarter of the previous year.
Among other banks, only Axis Bank saw a decrease of 3.4% in interest earned, but then its loan growth too has been low. The other banks discussed here all saw interest earned grow.
Net NPAs as a percentage of assets was up marginally for Axis Bank, moved down a tad for HDFC Bank, fell substantially for IndusInd Bank and UCO Bank and went up for IDBI Bank. Axis Bank’s restructured loans were at 2.43% of gross customer assets, compared with 0.4% of gross advances for HDFC Bank and 0.33% of advances for IndusInd.
Provisions and contingencies increased significantly compared with the September quarter for UCO Bank and IndusInd Bank, but were much lower for IDBI Bank, Axis Bank and HDFC Bank.
The bottom line: A year-on-year rise in net profit of 31% for Axis Bank, 31.6% for HDFC Bank, 43% for UCO Bank, 29% for IDBI Bank and a huge 95% for IndusInd Bank. The stock market reaction was interesting, with unfancied UCO Bank going up almost 6% and HDFC Bank rising the least, by a third of 1% on Friday. But here are the returns from the scrips since the end of March: HDFC Bank 75%, UCO Bank 144%, Axis Bank 160%, IDBI Bank 193% and IndusInd Bank a huge 338%. All except HDFC Bank have beaten the Bankex’s 121% rise from the end of March.
The Bankex has significantly underperformed the Sensex in the last month, on worries about monetary policy tightening. With loan growth set to increase and with the resilient performance of these banks in a difficult quarter, banks may continue to positively surprise analysts in the next few quarters.
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