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Business News/ Companies / Company-results/  HDFC Bank profit rises 20% to Rs2,869 crore
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HDFC Bank profit rises 20% to Rs2,869 crore

Strong growth in both interest income and other income boost profit despite a decline in net interest margin

Net interest income, or the difference between the interest earned on loans and that paid on deposits, increased 21.2% to `6,681 crore from `5,511 crore. Photo: Pradeep Gaur/MintPremium
Net interest income, or the difference between the interest earned on loans and that paid on deposits, increased 21.2% to `6,681 crore from `5,511 crore. Photo: Pradeep Gaur/Mint

Mumbai: HDFC Bank Ltd on Wednesday said its second quarter profit rose 20.5% on strong growth in both interest income and other income.

Net profit rose to 2,869.45 crore for the three months ended 30 September from 2,381.46 crore in the same quarter last year.

Profit was marginally lower than the 2,896.10 crore estimated in a Bloomberg poll of 30 analysts.

Net interest income, or the difference between the interest earned on loans and that paid on deposits, increased 21.2% to 6,681 crore from 5,511 crore.

Other income rose 25% to 2,551.76 crore. Of this, fee income stood at 1,868.90 crore, up nearly 22% from 1,536.5 crore a year ago.

The bank’s net interest margin (NIM) for the quarter stood at 4.2%, down 10 basis points (bps) from 4.3% reported in the April-June quarter. The drop in HDFC Bank’s NIM was partly due to a reduction in the bank’s minimum lending rate during the second quarter, said Paresh Sukthankar, deputy managing director. On 1 September, the private sector lender was the first to reduce its base rate by 35 bps to 9.35% after the Reserve Bank of India cut its benchmark lending rate by half a percentage point.

“We have always remained in the 4.1-4.4% NIM range. We should be able to maintain that this year," said Sukthankar.

The bank’s total advances as on 30 September stood at 4,18,541 crore, an increase of 28% from last year. While some part of the loan growth came in due to the bank’s lower base rate during July-September, most of it was due to healthy retail loan growth, Sukthankar said. Retail and wholesale loans are in a ratio of 52:48 currently.

“On a relative basis, it is quite likely that retail will outpace corporate loans this year. But it is probable that the corporate loan book in itself will do better than what it did last year," Sukthankar said.

While there has been some activity on ground in terms of more inquiries coming in for auto loans due to the festive season, whether it will convert to business remains to be seen, he added.

During the second quarter, HDFC Bank’s retail loan book saw a near 30% growth, while the wholesale loan book rose by over 23% from a year ago, according to the bank’s statement.

“In June, when we did not have the base rate benefit, we were still in the 20% loan growth range. So, it is difficult to say how much came in only because of the base rate cut, because it is part of a larger change in momentum," Sukthankar said.

HDFC Bank also saw its deposit base grow by 30% to 5,06,909 crore during the second quarter due to strong growth in its fixed deposit base. Term deposits were at 3,05,575 crore, up 37% from last year. In comparison, the current account savings account (CASA) ratio dropped to 40%, as on 30 September.

Gross non-performing assets (NPAs) as a percentage of total advances were at 0.91% in the quarter, compared with 1.02% in the year-ago quarter.

During the quarter, the bank set aside 681.29 crore as provisions, compared with 455.89 crore in the year-ago quarter. The bank had increased provisions in the April-June quarter as well and explained it as counter-cyclical provisions. In the April-June quarter, the bank had set aside 727.99 crore in provisions.

Post-provision, the net NPA ratio was at 0.25% against 0.28% in the year-ago period.

“The bank reported an earnings growth of 20.5% y-o-y (year-on-year). In light of the current macro environment, the current earnings trajectory of 20%+ y-o-y is strong which, in our view, justifies a premium valuation multiple. Hence, we recommend a buy rating on the stock," said Vaibhav Agrawal, vice-president research-banking, Angel Broking.

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Published: 21 Oct 2015, 01:07 PM IST
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