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Photo: Mint

As Puri’s tenure ends, HDFC Bank holds on to its historic profitability

  • The corporate loan book of HDFC Bank expanded by an eye-popping 26.5% in the September quarter
  • The retail loan book seemed to be the only scar from covid. It showed one of its lowest growths ever

India’s most valuable lender HDFC Bank looks all set to dust off the pandemic’s negative impact, just like it did when the wave of bad loans hit it four years ago.

On Saturday, the private sector lender reported net profit growth of 18% for the September quarter. At 7,513 crore, it beat analysts’ estimates by a wide margin. That came on the back of strong 18% growth in core income. Margins remained intact and loan growth at 16% trumped that of the industry by a mile.

The bank seems to have taken full advantage of the progressive unlocking of the economy. Even as the narrative is still of tepid loan demand, HDFC Bank’s corporate loan book expanded by an eye-popping 26.5% in the September quarter. However, the pain of the pandemic was visible in the retail loan book, which showed one of its lowest growths ever at 5.3%.

Resilience amid trouble
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Resilience amid trouble

“While there has been some improvement in economic activity during the current quarter, the continued slowdown has led to a decrease in loan originations, the sale of third-party products, the use of credit and debit cards by customers and efficiency in collection efforts," the bank said in its exchange filing.

However, the retail loan book seemed to be the only scar from the pandemic, and was expected.

The lender’s asset quality metrics also did not disappoint. Metrics of asset quality are unlikely to show the true picture on stress, considering a range of forbearance available. The regulator has allowed a standstill in bad loan recognition for restructured loans. An ongoing case has made the Supreme Court put a stay on labelling loans bad, even if they have defaulted, until it gives a verdict. HDFC Bank said its bad loan ratio would have been 1.37% instead of 1.08% in the absence of the standstill on bad loan recognition. Irrespective of this forbearance, the bank made provisions towards these accounts, which should comfort investors.

The optimistic commentary from the management stood out, according to analysts. Most loan segments are either back to pre-pandemic levels or poised to be back in a few months, the management said in a post earnings call with analysts.

Restructuring as part of the total loan book is not material yet, the management said. The regulator has allowed lenders to restructure loans without labelling them as bad after the end of moratorium in August. Analysts and bankers warned that lenders may see at least 5% of their loan book being recast. HDFC Bank believes that even the most vulnerable small business segment will be able to survive the pandemic’s blow.

An unprecedented economic contraction and a leadership change after 26 years has not dented sentiment for the bank’s stock. The bank held on to its historic profitability even as managing director and CEO Aditya Puri’s tenure came to a close. So far HDFC Bank’s investors do not seem Panglossian in their fondness for the stock.

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