HDFC Bank Ltd, India’s second largest private-sector bank by assets, on Tuesday said net profit for the June quarter rose 21% to 2,696 crore, or 10.6 per share, from 2,233 crore, or 9.2 per share, in the corresponding period in 2014, riding on strong growth in retail loans and fee income even as the lender continued to increase provisions. The profit matched the median estimate of 31 analysts in a Bloomberg survey.

The retail loans to individuals to buy vehicles, for small enterprises and for personal consumption, grew 26%, helping the bank’s total loan book grow 22% to 3.82 trillion.

The other income—or income earned in fees, trading in foreign exchange and gain on revaluation or sale of investments—increased 33% to 2,462 crore in the June quarter from 1,851 crore a year ago. Within other income, earnings from fees and commissions, which forms the largest chunk, increased 22% to 1,713 crore.

The bank also gained on revaluation and sale of investments five times over to 126 crore from 25 crore in 2014.

Puneet Gulati, analyst with JM Financial Securities Ltd said the bank’s results were “solid" without any negatives.

“They have increased provisions, but it is in line with what was expected. This is a prudent measure by the bank which will be beneficial in the future," said Gulati, adding that strong retail loan growth and an increase in fee income means that the “growth engine" for the bank is chugging along.

Provisions and contingencies rose 51% from a year ago to 728 crore, though the non-performing assets (NPAs) did not see a sharp rise.

The bank has accounted for 65 crore as floating provisions, which are not mandatory and can be ploughed back into the bottom line, when needed.

Aditya Puri, managing director of HDFC Bank, said the increase in provisions was just a prudent measure. “Most of the increase was for floating provision. It is prudent and good banking. Last year, we had used some of these provisions because of which provisions dropped. It is not that we are expecting any deterioration in asset quality," Puri said on the sidelines of HDFC Bank’s 21st annual general meeting (AGM) on Tuesday.

Net NPAs were at 0.27% from 0.3% from a year ago, while gross NPA was at 0.95% against 1.07% in the same quarter last year.

HDFC Bank has been consistently increasing provisions in the last one year.

Its net interest income, or the difference between the interest earned on loans and that paid on deposits, increased 24% to 6,389 crore in the June quarter from 5,172 crore in the quarter ended 30 June 2014.

However, net interest margin, or the difference between the yield a bank earns on loans and that it pays for deposits, dropped to 4.3% from 4.4% last year.

No official from the bank was available to take queries as the bank also had its annual general meeting on Tuesday. The bank’s current and savings account (CASA) deposits, the cheapest source of funds for the bank, dropped to 39.6% of total deposits in the quarter ended 30 June from 43% a year earlier.

However, Gulati of JM Financial said that he does not see the drop in CASA as alarming.

At the AGM, Puri said he was confident of growth prospects of the bank as the Indian economy expands at a faster pace.

“Around 55% of our branches are in the semi-urban and rural areas. That is the future of India. The units are small and they are far off, but we are confident of that market," Puri told shareholders.He said the bank is “well positioned to deal with the challenge posed by e-commerce".

He expects interest rates to soften further if the current environment of lower commodity prices and easy liquidity in the banking system continues.

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