Robust growth brings little cheer, HDFC Bank stock slides 1.76%

Robust growth brings little cheer, HDFC Bank stock slides 1.76%

Buoyed by a healthy growth in its retail lending and a higher pie of fee and commission-based income, HDFC Bank Ltd, the third largest bank by market value in India, announced its second quarter results on Friday.

The private lender said it had earned a net profit of Rs3,68.5 crore for the quarter—July to September. This is an increase of 40.1%, over Rs263 crore from the year-ago period.

HDFC’s retail loans grew 37.1% on a year-on-year basis to Rs34,568 crore, and now form 55.1% of gross advances made by the lender.

On the Bombay Stock Exchange (BSE), the shares of HDFC Bank however, closed on Friday at Rs1,456.45— 1.76% lower than its close on Thursday.

The total income of the bank for the quarter ended 30 September grew 44.0%, to Rs2,845.1 crore, from the same period last year. Net interest income, or the difference between the interest earned on its loans and the interest cost of its deposit liabilities, jumped to Rs1,162.7 crore, compared with Rs374.7 crore in September 2006.

“The bank has raised capital to take care of business growth and Basel-II norms," said Hitesh Agarwal, vice-president of Angel Broking Ltd. “Strong management, consistent performance, sound asset quality and superior return ratios have helped the bank’s stock command premium valuations."

The bank said this was driven by an average asset growth of 39.4%. The bank’s net interest margin, or the difference between what it earned on loans and paid for deposits, had widened to 4%, compared with 3.8% in September 2006. Fee and commission income, from the sale of mutual funds and home loans of its parent, Housing Development Finance Corp. Ltd (HDFC Ltd), as well as third-party sales, grew at 24%. The bank reported higher “other income" at Rs4,82.4 crore, against Rs397.7 crore for the corresponding quarter of the previous year. The lender also said that revenue of Rs38.7 crore from foreign exchange and derivatives, and sale or revaluation of its investments at Rs46.2 crore also contributed to this income category.

The total balance sheet size of HDFC Bank grew by 44.1%, to Rs1.22 trillion in the second quarter, from Rs84,363 crore in the year-ago period. The total deposit base of the bank was Rs91,069 crore—an increase of 43.5% from the same period last year.

With savings account deposits (on which 3.5% interest is paid) of Rs22,373 crore and current account deposits (on which the bank pays no interest) at Rs25,456 crore, the current account and savings account, or low cost deposit mix, was at 52.5% of total deposit base of the bank—one of the highest by industry standards of 35-40%.

In July, HDFC Bank made a public offering of 6,594,504 American depositary shares (ADS), each representing three equity shares, at a price of $92.10 (Rs3,619.53) per ADS. The net proceeds of the ADS issue were Rs2,393.9 crore.

As a result, HDFC Bank’s capital adequacy ratio stood at 14.9%, against the prescribed regulatory minimum requirement of 9% in the second quarter of the fiscal year.