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M.V.S. Santosh Kumar

BL Research Bureau HDFC Bank posted a Rs 528 crore net profit in September quarter, a jump of 44 per cent over the same quarter last year. Though the two quarters are not strictly comparable as the bank has recently merged Centurion Bank of Punjab (CBoP) with itself, the results were better than expected.

The profit growth was driven by impressive net interest margins (NIM) of 4.2 per cent and low costs resulting from a high proportion of low-cost deposits (44 per cent of total advances). The net interest income has increased by 60.5 per cent year-on-year due to the increase in advances and deposits. Higher net interest margins sequentially helped net interest income. ‘Other income’ increased by 33 per cent, dented by losses in the trading portfolio.

Operating expenses have increased by 69 per cent owing to higher employee cost and branch expansions. HDFC Bank added 183 branches and 364 ATMs in three months.

The deposits have grown at 46.7 per cent driven mainly by higher cost term-deposits. Retail advances at 54.7 per cent of the gross advances, continue to raise concerns on asset quality going forward. In this context, net NPA/advances has increased from 0.4 per cent to 0.6 per cent year-on-year. The provision coverage on NPAs has come down from 67 per cent to 65 per cent, offering less room for comfort on this score.

Though current and saving accounts (CASA) ratio has come down sharply from what it was a year ago, the bank’s ratio remains healthy and has demonstrated that a higher ratio is sustainable in current tough market conditions. The CRAR of the bank stands at 11.4 per cent (14.9 per cent last year), mainly due to the merger of CBoP. This suggests that the bank may have to look out for options to raise capital in future to maintain healthy CRARs. Earnings/share has improved year-on year and sequentially from Rs 10.8 to Rs 12.3. The rapid branch expansion may boost the low-cost deposit base and generate fee income, which will help in maintaining NIMs. The bank has to put a check to slippages in assets to improve profitability. Though the CBoP merger has weighed on the balance sheet over the past two quarters, the management claims that the merger will bear fruits from next fiscal.

More Stories on : Stocks | Private Banks | HDFC Bank Ltd

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