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Even as the market was expecting shrinkage in the net interest margin (NIM) of HDFC Bank, the bank has surprised on the positive side by maintaining it at existing levels.
NIM shrinkage was expected given the rise in the cost of funds. However, the bank managed to maintain it at 4.2 per cent through a combination of lending rate hikes and improvement in the low-cost deposit ratio. Appreciably, in a quarter which witnessed liquidity scarcity, the low-cost deposit ratio of the bank improved to 51 per cent against 50.5 per cent in the December 2010 quarter.
Strong growth in deposits vis-à-vis a decline in advances during the last three months has also meant that the gap between deposit growth and advances growth, something which the RBI has been concerned about, was bridged to a good extent. Yet, HDFC Bank's March-end credit-deposit ratio of 76.6 per cent is still higher than the 75.7 per cent clocked by the banking system as a whole. Nevertheless, this is a significant decline from the bank's December credit-deposit ratio of 82 per cent, which is considered quite stretched.
As advances growth moderated, the net interest income clocked a 20 per cent growth year-on-year for the March quarter, compared with the 25 per cent growth seen in the December quarter. However, where the net interest income missed, strong ‘other income' growth made up.
Fee income
Strong fee income growth along with lower provisions in the March quarter helped the bank maintain its net profit growth at similar levels clocked by it during the previous nine months. Consequently, net profit growth year-on-year for the March 2011 quarter and fiscal year 2010-11 stood at a healthy 33 per cent.
The bank had to set aside lower provisions this quarter and also for the year as the asset quality of its book improved. Net NPA ratio at 0.2 per cent and restructured asset proportion of 0.4 per cent continue to place the bank amongst the best in terms of asset quality.
HDFC Bank trades at a premium to its peers as it continues to enjoy a strong CASA ratio which in turn support superior net interest margins and a lower NPA ratio.
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