Mumbai: HDFC Bank Ltd on Monday reported a 20.2% rise in its net profit for the June quarter on higher interest income. Its asset quality worsened as expectations of farm loan waivers affected recoveries from farmers.

Net profit rose to Rs3,893.84 crore in the three months ended 30 June from Rs3,238.91 crore a year earlier. Fourteen analysts polled by Bloomberg had estimated a profit of Rs3,914.50 crore.

Net interest income (NII), or the core income a bank earns by giving loans, increased 20.4% to Rs9,370.74 crore from Rs7,781.44 crore last year. Other income jumped 25.3% to Rs3,516.66 crore.

Total advances rose 23.4% from a year ago to Rs5.81 trillion, while deposits rose 17% to Rs6.71 trillion. Speaking at a post results press conference, Paresh Sukthankar, deputy managing director, said that the bank continued to maintain loan growth rate, which was healthy in both retail as well corporate book.

As of end June, retail loans formed 54% of the total book.

He said that while the demand for retail loans across product categories was strong, on the corporate side, it was mainly for working capital, trade finance and some loan refinancing opportunities.

Asset quality was the only blip in the fiscal first earnings of the private sector lender. In the reporting quarter, of the total increase in gross bad loans, 60% was from its agriculture loan portfolio.

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“Recoveries from agriculture advances were impacted during the quarter by borrower expectations of farm loan waivers arising out of policy announcements in certain states. These loan waiver policies are in the process of being finalized and implemented. As a prudent measure, the bank has enhanced specific provision coverage for its non-performing agricultural advances," the bank said in a release.

Total bad loans rose 47.2% to Rs7,242.93 crore from Rs4,920.89 crore a year ago. Quarter-on-quarter, it increased 23.06% from Rs5,885.66 crore. Gross non-performing assets (NPAs) rose to 1.24% as compared to 1.05% in the previous quarter and 1.04% in the year-ago quarter. Net NPAs were at 0.44% in the June quarter compared to 0.33% in the previous quarter and 0.32% in the same quarter last year.

Sukthankar said as a prudent measure, the bank set aside more money to cover bad loans.

Provisions and contingencies climbed 23.5% to Rs1,558.76 crore in the June quarter from Rs1,261.80 crore in the preceding three months. On a year-on-year basis, it surged 80% from Rs866.73 crore. The provisions also include those for standard loans from certain stressed sectors such as telecom and iron and steel.

“The bank has maintained that there could be some stress on the agri loan portfolio going ahead also. However, given that the core loan portfolio has remained largely stable and growth rates have picked up again, the earnings visibility remains fairly stable for the bank," said Siddharth Purohit, an analyst at Angel Broking.

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