HDFC Bank Ltd, India’s most valuable lender, said fiscal third-quarter profit rose 20%, in line with analysts estimates.

Net profit rose to 3,356.8 crore in the three months ended 31 December from 2,794.5 crore in the year earlier. A Bloomberg poll of 31 analysts expected HDFC Bank to report a net profit of 3,350 crore.

Net interest income (NII), the core income a bank earns from its lending business, grew 24% to 9,940.7 crore.

The growth in NII was driven by a 25.7% growth in loan disbursals to an outstanding of 4.36 trillion as of 31 December. Retail loans formed 53% of total advances while the rest were to corporates. The private lender’s corporate loan book expanded at a slower pace of 18.9%.

Paresh Sukthankar, deputy managing director, said the growth in the lender’s corporate book is still largely driven by short-term working capital loans. “The better placed companies in most sectors continue to see working capital loans. Clearly, we have not seen a pick-up in capex related loans," said Sukthankar in a conference call with the media.

The bank’s retail book continued to expand at a faster pace of 29.2% driven mainly by car loans and business banking both of which grew by about 23%. A bounce back in commercial vehicle loans also boosted retail loan expansion.

“But we are not changing the risk profile of what we are doing. Our asset quality on the retail portfolio is fairly stable," said Sukthankar. The bank continued to report strong asset quality.

Gross non-performing assets (NPAs) as a percentage of total advances of the bank was 0.97% for the quarter ended 31 December, down marginally from 0.99% in the corresponding period in 2014. Gross NPAs rose marginally from 0.91% in the preceding September quarter.

The marginal increase in bad loans compared with the previous quarter was because of slippages in agriculture loans and credit card repayments, Sukthankar said.

Net bad loans as a percentage of total loans was at 0.29% for the December ended quarter compared to 0.25% in the previous quarter and 0.28% in the year ago quarter.

Notwithstanding its steady asset quality, the private lender increased total provisions and contingencies to 653.9 crore from 560.4 crore. HDFC Bank has been consistently increasing provisions in the last six quarters.

Sukthankar said that the bank didn’t have to recognize any loans as bad after the Reserve Bank of India’s latest directive that mandated banks to treat visibly stressed loans as bad and provide for them.

Other income, which is income earned in fees, trading in foreign exchange and gain on revaluation or sale of investments grew by 13.3% to 2,872.2 crore, the bank said in an exchange filing on Monday.

Driving the bank’s other income growth was earnings from fees and commissions, which forms the largest chunk. This grew by 11% to 2,004.8 crore. The bank also gained 327.9 crore through revaluation and sale of investments during the quarter.

The bank’s current and savings account (CASA) deposits, the cheapest source of funds for the bank, increased marginally to 39.9% for the December quarter from 39.6% of total deposits in the quarter ended 30 June. Total deposits posted a growth of 26.5%, current account balances grew by 29.7% and savings account deposits grew by 20.6%.

The jump in current account was due to collections for tax-free bond sales, adjusted to which the growth would be about 23%, Sukthankar said. Typically, companies intending to invest in tax-free bonds tend to keep large current account balances in the run-up to the allotment date of a bond issue as subscribers are required to keep aside funds to the extent of their bids at the issue.

“In light of current macro environment, the current earnings trajectory of 20%+ YoY is strong which in our view, justifies a premium valuation multiple. Hence, we maintain our BUY rating on the stock," said Vaibhav Agrawal, vice president of research–banking at Angel Broking.

On Monday, shares of HDFC Bank rose 0.94% to close at 1039.95 on the BSE while the benchmark Sensex gained 0.21% to close at 24,485.95 points.

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