HDFC Bank Ltd has a reputation of being a consistent performer and its third quarter results were no different.

The private sector lender reported a 20% year-on-year growth in net profit to 585.85 crore for the quarter ended 31 December, in line with analysts’ estimate of 5,605.70 crore in a Bloomberg survey of 19 brokerage firms.

The fact that profits came on the back of a 22% core income growth and a 4.3% net interest margin should please investors. Non-interest income also grew at a fast clip of 28% from a year earlier, aided by higher fee income.

But strong growth and profitability have become a given in HDFC Bank’s performance. In that, these metrics are hardly surprising for investors. What analysts were looking for is whether the lender has continued to weather the bad loan crisis that hit its peers, and whether it has managed to escape the impact of the strain in small businesses.

It certainly dodged the crisis triggered by Infrastructure Leasing and Financial Services Ltd, as it had negligible exposure to the beleaguered company. And the quality of its loans to non-banking financial companies remain pristine.

Naveen Kumar Saini/Mint
Naveen Kumar Saini/Mint


At the aggregate level, HDFC Bank continues to report enviable gross and net bad loan ratios. Gross non-performing assets for the December quarter were 1.38% of its loan book, slightly higher than 1.29% a year earlier. But ratios can reduce simply because of fast growth in total assets, which has been the case with the bank.

The lender’s loan book has been growing at a brisk pace of more than 20% and the third quarter was no different.

In the December quarter, the bank made 28% more provisions towards bad loans than it did a year earlier, which helped keep the net bad loan ratio at less than 1%.

That said, HDFC Bank has faced some heat on its agricultural lending and while loans to small businesses have also seen some strain, the management assured analysts in an earnings conference call that there is no material deterioration.

Either way, investors don’t seem to be too worried on asset quality as the HDFC Bank stock has gained more than 8% in the past one year and has outperformed the benchmark Nifty index, which has marginally declined. The stock trades at a multiple of a little over three times its estimated book value for fiscal year 2020, which doesn’t make it the most expensive among banks.

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