HDFC Bank’s profit rises 20% in March quarter, meets estimates

HDFC Bank Ltd, India’s most valuable lender, on Friday reported a 20% rise in fourth quarter net profit, in line with analysts’ estimates, as it benefited from loan demand from individuals and mid-sized companies.

Net profit rose to Rs.3,374.2 crore in the three months ended 31 March from Rs.2,806.9 crore in the year-earlier period. A Bloomberg poll of 26 analysts estimated the bank to post a net profit of Rs.3,389 crore for the three months ended 31 March.

Net interest income (NII), the core income a bank earns from its lending business, grew 24% to Rs.7,453.3 crore.

The increase in NII was driven by a 27.1% rise in loan disbursals and a healthy net interest margin (NIM) of 4.3%. Outstanding assets stood at Rs.4.64 trillion as of 31 March. Retail loans formed 51% of total advances, while the rest went to corporate borrowers. Retail loan growth outpaced the corporate book, expanding 29.7%. The private lender’s corporate loan book expanded 27.29%.

The market rewarded the bank’s consistent performance on earnings. Shares of HDFC Bank gained 0.11% to close at Rs.1,092.30 on BSE as the benchmark Sensex fell 0.16% to 25,838.14 points.

“In light of current macro environment, the current earnings trajectory of 20%+ YoY is strong which in our view, justifies a premium valuation multiple. We maintain our BUY rating on the stock,” said Siddharth Purohit, analyst at Angel Broking Pvt. Ltd.

Growth in HDFC Bank’s loan book as well as deposits trumped that of the banking system as a whole, indicating a gain in market share for the lender. Total advances grew by 27.1% in fiscal year 2016 as against the system’s growth of below 10%. While much of the growth is still driven by working capital demand, for HDFC Bank, there has been a spurt of demand from mid-sized companies, according to Paresh Sukthankar, deputy managing director.

“We have gained market share in the wholesale business which has meant that an existing large customer base on corporate banking side and an increase in the base of emerging corporate banking,” said Sukthankar in a conference call with reporters.

He added that the growth in loans to mid-sized companies could probably compensate for a sharp slowdown in loan demand from large corporate groups, most of which are debt-laden.

Within HDFC Bank’s retail loan book, the fastest growth came from personal loans which expanded 44%. Credit card outstandings grew 27%.

Sukthankar said the bank was comfortable with the high growth in its unsecured portfolio, a result of the bank’s digital initiatives.

Despite the rapid growth in its loan book, the bank’s asset quality remained stable. Sukthankar said the lender does not have exposure to highly leveraged companies, loans to which have swelled the stressed loan portfolio of public sector banks.

Gross non-performing assets as a percentage of total advances were 0.94% in the quarter ended 31 March, down marginally from 0.97% in the previous quarter but marginally up from the corresponding period in 2014.

Net bad loans as a percentage of total loans made up 0.28% for the March quarter compared with 0.28% in the previous quarter and 0.25% in the year-ago quarter.

Notwithstanding its steady asset quality, the lender increased total provisions and contingencies to Rs.662 crore from Rs.576.7 crore in the year-ago quarter. HDFC Bank has been consistently increasing provisions in the last seven quarters.

Non-interest income, or income earned in fees, trading in foreign exchange and gains on revaluation or sale of investments, grew 11.8% to Rs.2,865.9 crore, the bank said in an exchange filing on Friday.

Earnings from fees and commissions increased 18.39% to Rs.2,172.4 crore. The bank also gained Rs.115.5 crore through revaluation and sale of investments during the quarter.

HDFC Bank’s current and savings account deposits, the cheapest source of funds for banks, increased to 43% of total deposits in the March quarter from 39.9% in the quarter ended 31 December. Total deposits increased 21.2%, the bank said.