HDFC Bank profit up 20%, but bad loans rise

Above industry-average credit growth, coupled with healthy ‘other income’, helped HDFC Bank report a 20 per cent year-on-year (y-o-y) increase in net profit in the first quarter ended June 30. The profitability came even as provisions towards bad loans, especially in the agriculture segment, more than doubled.

In the reporting quarter, India’s second-largest private sector bank recorded a net profit of ₹3,894 crore as against ₹3,239 crore in the year-ago quarter.

Net interest income (interest earned less interest expended) grew 20 per cent to ₹9,371 crore. This was driven by loan growth of 21 per cent and a core net interest margin of 4.4 per cent.

Other income, including recoveries and dividend, rose 25 per cent to ₹3,517 crore.

Gross non-performing assets (GNPAs) edged up to 1.24 per cent of gross advances as on June 30, as against 1.04 per cent as on June 30, 2016. During the quarter, of the total increase in gross NPAs, 60 per cent pertained to the agricultural segment.

Paresh Sukthankar, Deputy Managing Director, said recoveries from agricultural advances were impacted during the quarter by borrower expectations of farm-loan waivers arising out of policy announcements in certain States. “But something like this in a year when otherwise the harvest has been good, is out of our control,” he added.

Provisioning increase

These loan-waiver policies are in the process of being finalised and implemented. The bank has therefore enhanced specific provision coverage for its non-performing agricultural advances.

Provisions and contingencies for the reporting quarter were up 80 per cent at ₹1,559 crore (₹867 crore in the year-ago quarter). In line with an RBI directive, the bank has put in place a board-approved policy on provisioning for standard assets at rates higher than the regulatory norm of 0.40 per cent. Besides telecom, it is also hiking provisions for assets in the iron and steel sector.

Sukthankar said given the mix of loans and deposits, the bank is expected to maintain a net interest margin in the 4-4.30 per cent band.

Total deposits were up 17 per cent y-o-y at ₹6,71,376 crore. Advances grew 23 per cent to ₹5,80,976 crore.

HDFC Bank shares closed at ₹1,734.55 apiece, up 1.83 per cent, on the BSE.