HDFC Bank posts 20 per cent hike in net profit in Q2 on retail loan demand

By Joel Rebello

MUMBAI: HDFC Bank has posted a 20 per cent increase in its net profit for the quarter ended September at Rs 2,869 crore on the back of strong demand for loans from individuals to buy vehicles, for personal consumption, and for small businesses.

India’s second largest private sector bank by assets on Wednesday reported earnings per share of Rs 11.3 for the second quarter, up from Rs 9.8 per share a year earlier, despite a record tax outgo of Rs 1,492 crore. The second quarter profits fell slightly short of the Rs 2,896 crore predicted by a Bloomberg poll of 30 analysts.

Paresh Sukthankar, deputy managing director at the bank, said demand for loans was strong from individuals, particularly in urban areas and cities, and that it is likely to remain stronger than demand from companies for the rest of the fiscal. HDFC Bank’s loan book grew 28 per cent, driven by a 29 per cent growth in loans to individuals and a 25 per cent growth in loans to companies.

Other income, or the income the bank earns from fees, forex commissions and investments, increased 25 per cent to Rs 2,552 crore.

Sukthankar said he was satisfied with the bank’s performance in an environment where demand for loans from companies for new investments remains weak. "We are still better than the system; our cost to income ratio has come down (and) our asset quality remains stable. In the overall context the banking environment has seen better times," he said. "I am not convinced about analysts’ expectations and how they come to it. It’s easier to calculate on spread sheets than run a bank," Sukthankar said.


HDFC Bank’s cost to income ratio dropped to 45.4 per cent in September from 46.3 per cent a year earlier, and its net interest margin (NIM), or the difference between the yield a bank earns on loans and that it pays on deposits, dropped to 4.2 per cent from 4.5 per cent a year earlier. Sukthankar said the drop in NIM was driven by a rush towards fixed deposits during the quarter and also because the bank reduced its base rate, or minimum lending rate, by 35 basis points (bps) to 9.35 per cent effective September 1. One basis point is 0.01 per cent. The ratio of current and savings account deposits to the bank’s total deposits remained stable at 40 per cent, the same level as on June 2015, but down from 43 per cent in Q2 last year.

"We saw a 37 per cent rise in fixed deposits last quarter as people rushed to lock in deposits at a higher rate as interest rates were coming down," Sukthankar said. "This, together with the base rate cut, led to a 10 bps impact on our NIM. However, our margins are within the 4.1 per cent-4.4 per cent band we have always guided for," he said.

He said HDFC Bank may look at cutting its base rates further before December 31, but did not elaborate on the quantum of the likely cut. HDFC Bank’s asset quality remained stable as NPAs dropped to 0.25 per cent from 0.28 per cent. Loan loss and other provisions increased to Rs 681 crore from Rs 456 crore last year, but lower than the Rs 728 crore the bank had reported in the quarter ended June 2015.