HDFC Bank delivered 21 per cent growth in net profit in the quarter ending June over the previous year on the back of a 21 per cent growth in its loan book. While profit growth has been slowing in recent quarters, the private sector bank has put up a good show given that the banking industry has been grappling with three years of continuous economic slowdown. HDFC Bank continued to maintain stable margins and steady asset quality. The only weak link was its slowing retail loans.

While HDFC Bank continues to outperform industry credit growth by almost 6-8 per cent, as it did in the past, growth in recent quarters has been driven by the corporate segment rather than the retail loan portfolio — a trend that is in contrast to its peers such as ICICI Bank and Axis Bank.

For HDFC Bank this is the third consecutive quarter when loan growth has been led by the corporate segment. In the latest June quarter, the bank has been able to grow its retail loan book by 14 per cent (adjusted for reclassification of loans between wholesale and retail). The slowdown in lending to the auto segment and sluggishness in the commercial vehicle and construction equipment segments has impacted the bank’s retail loan growth.

The growth in loans has been driven by corporate loans, mainly for working capital financing. The corporate loan book has gone up by 19 per cent in the June quarter.

But despite the faster growth in corporate loans, the bank’s loan mix has not altered significantly over the last one year. Retail loans still account for more than half of the bank’s loan portfolio. This has helped the bank maintain a stable margin performance.

HDFC Bank traded at a hefty premium to its peers, thanks to its exposure to a well-diversified loan book, better return ratios, sufficient capital cushion and low loan delinquency. While slowing retail loans are a concern, HDFC Bank continues to score well on other parameters.

The bank, for instance, has one of the best net interest margins in the industry at 4.4 per cent, which continues to remain stable. The bank has also been able to maintain stable asset quality in challenging times for the banking sector. While there has been some pressure on asset quality in the June quarter, with gross non-performing assets (GNPA) going up sequentially to 1.07 per cent of loans in the June quarter from 0.98 per cent in the March quarter, loan delinquency is still amongst the lowest in the industry.

Even the bank’s restructured book is just 0.2 per cent of loans, much lower than about 2.5 per cent for its peers such as ICICI Bank and Axis Bank. This lends comfort as an increase in provisioning requirement is less likely than its peers, as tighter provisioning norms come into force from April 2015, when the existing “regulatory forbearance” on restructuring is no longer available.

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