HDFC Bank balance sheet shrinks, but profit growth continues

HDFC Bank balance sheet shrinks, but profit growth continues

HDFC Bank Ltd has reported a net profit gain of 33% in the December quarter from a year ago. Boom or bust, flood or drought, the bank has been consistently posting profit after tax growth of 30% or so quarter after quarter.

But it has not been all that aggressive in the three months ended 31 December. Its balance sheet has shrunk. Advances grew just 1.33%, or Rs2,093 crore, from the end of September. That’s far less than the cumulative 9.9% growth achieved by the whole sector during the quarter. Similarly, deposits shrunk by 1.6%, or Rs3,119 crore, during the three months, again lagging the 5.6% growth for the sector.

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However, HDFC Bankhas been able to beat Street estimates, helped by curtailing operating expenses growth rate along with a rise in fee income. In the December quarter, too, low-cost Casa (current and savings account) deposits account for half the total, helped by a 30.7% increase in savings bank deposits from a year ago.

Operating expenses grew only 22%. Consequently, operating profit gained by nearly one-third over a year ago. Net interest income grew 25% from last year and 9.9% from the September quarter. The bank sustained net interest margins at 4.2% from the September quarter.

Asset quality is also improving. Net non-performing assets as percentage of net advances shrunk to 0.2% in the three months ended December, from 0.3% at the end of the September quarter. Its capital adequacy ratio stood at 16.3% on 31 December, well above the 9% stipulated by the Reserve Bank of India.

HDFC Bank’s share has followed the broader Bankex index of the Bombay Stock Exchange, losing some 10% since December, when liquidity problems came to the fore. But despite these pressures, the management says that credit costs are coming down, liquidity is easing and the bank will grow faster than the industry.

That should sustain some buying interest in the stock despite it trading at 3.29 times its fiscal 2012 book value.

Graphic by Yogesh Kumar/Mint

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