HDFC Bank Ltd seems to be operating in an alternate universe. While the banking industry has struggled to grow its advances—up by 0.1%—during the September quarter, HDFC Bank’s loan book rose 8.5%.
That translates into a year-on-year growth of 22.9%, the best in six quarters. This rapid rise in the loan book was driven by consumer financing, which grew 32.5% from a year ago. The quarter-on-quarter numbers look even more spectacular, perhaps magnified because the three months ended June are typically a lean season for credit growth.
The advances growth, however, was not matched by deposits, which grew 18.8% year-on-year, less than the 22% seen in June.
The loan book growth meant that net interest income rose 26.7% from a year ago, an eight-quarter best. The only disappointment perhaps is that non-interest income grew a wan 11% from a year ago in the September quarter, dragged down by a Rs.106 crore loss on revaluation/sale of investments . That is less than the 36.6% growth seen in the June quarter. The positive is that fee income grew 22.4%, just a tad below the growth seen in the June quarter.
Despite a retail-led strategy, HDFC Bank has managed to keep its costs under control. The cost-income ratio for the September quarter was 49.4%, a level similar to June. But the slower pace of growth in non-interest income meant that operating profit grew 20.9% from a year ago in the September quarter, lower than the June figure.
But HDFC Bank’s asset quality has actually improved. Gross non-performing assets (NPAs) as a proportion of the loan book fell to 0.9% in September compared with 1% in June 2012 and also a year ago. The bank was thus able to set aside a smaller sum against bad loans and reach its now familiar 30% plus net profit growth.
The only point of concern is that the retail loan growth is led by some shaky categories such as credit cards (12% quarter-on-quarter growth), commercial vehicles (14%) and gold loans (14.9%). True, the latter categories are loans against assets, but still NPAs in this segment would be worth watching.
In the final analysis, HDFC Bank’s results haven’t surprised much. With the stock trading at a massive 4.85 times estimated book value for fiscal 2013, these numbers aren’t enough for a breakout rally.