But for the dip in net interest margin and the slight increase in bad loans, HDFC Bank’s June quarter performance has been steady. Healthy traction in both retail and corporate loans, improving cost to income ratio and strong growth in fee income, has kept the bank’s earnings on a sound footing. That said, slowing pace of growth in the bank’s core net interest income over the past two quarters, may need some watching, as it weighs somewhat on earnings. Net profit for the latest June quarter grew by 18 per cent y-o-y.
Margin dip
For HDFC Bank, that has been steadily growing its loan book by about 20-25 per cent (year-on-year) on an average over the last 7-8 quarters, growth has not been an issue. In the latest June quarter too, the bank has delivered 22 per cent YoY growth in loans.
The bank has also been gaining market share over the past several quarters, as PSU Banks continue to consolidate their loan book, opening up lending opportunities for stronger private players such as HDFC Bank.
Even with the private bank space, HDFC Bank has moved up in the pecking order among private banks in terms of loans. ICICI Bank, which enjoyed the status of the largest private bank in terms of loans, slipped to the second spot, three years back. HDFC Bank has since been able to retain its top slot, clocking double-digit growth.
In the last two quarters, though, despite the healthy traction in loans, the growth in the bank’s net interest income has somewhat slowed. From 24 per cent YoY growth in the December 2017 quarter, net interest income grew by a slower 17.7 per cent in the March 2018 quarter and by 15.4 per cent in the latest June quarter.
From 4.4 per cent levels in the June quarter last year, the bank’s net interest margin has slipped to 4.2 per cent in June quarter this year.
One reason, could be the relatively higher proportion of fixed rate loans (70 per cent), that aided margins in a falling rate scenario, but now weighs somewhat on margins, as deposit rates continue to rise. That said, the bank’s healthy share of low cost CASA deposits should keep margins within a narrow band.
Slight increase in NPAs
The lingering stress within the banking system has rubbed off on HDFC Bank too, going by the incremental addition (though modest when compared to peers) to its bad loan book over the past couple of quarters. HDFC Bank’s gross non-performing assets (GNPAs) that had been hovering around the 1 per cent mark, saw a slight increase to 1.24 per cent of loans in the June 2017 quarter. This has inched up to 1.33 per cent in the June 2018 quarter.
While the GNPAs for the bank, in absolute terms, has gone up by 30-40 per cent YoY over the past few quarters, ahealthy growth in loans has kept delinquency ratio at bay.