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The rest of India Inc may be slowing down, but it is business as usual for HDFC Bank. The bank’s net profit grew by 31 per cent year-on-year, thanks to improved net interest margin, better-than-industry growth in advances and higher non-interest income.
Non-interest income grew 36 per cent, driven by treasury profits (profits from sale of investments due to falling yields), and forex exchange and derivatives income. Core fee income grew by 24 per cent year-on-year.
Strong credit growth
While the banking system witnessed a moderation in credit growth (1 per cent in the June 2012 quarter), HDFC Bank managed a loan growth of 9 per cent.
Surprisingly, this growth was driven by the corporate advances, which expanded 15 per cent in the June 2012 quarter over the March 12 quarter.
On a year-on-year basis, corporate advances grew 60 per cent. Their share has risen to 48 per cent of the book in the June 2012 quarter from the 37 per cent a year ago.
Aiding margin improvement
Corporate loans are typically short-term and low-yielding. However, the rise in the corporate book did not affect margins, thanks to an improved credit-deposit ratio.
The net interest margin improved to 4.3 per cent in the June 2012 quarter from 4.2 per cent the quarter before as the credit-deposit ratio rose to 83 per cent from 79 per cent in the same periods.
A rise in proportion of high-yielding loans such as gold, credit card and equipment financing also aided margin improvement. This combated a fall in the low-cost deposits ratio which fell to 46 per cent in June 2012 from 48.4 per cent in March 2012.
The bank had to fund rising credit demand through higher cost term deposits.
Going forward, the margins can be maintained in spite of a 20 basis points cut in base rate as the wholesale deposits rates declined by more than 250 basis points for the banks in three months.
Improving asset quality
The asset quality of the bank continues to improve even in the current challenging environment. The gross NPA ratio stood at 0.97 per cent as of June 2012 against 1.04 per cent a year ago.
But with a rising share of corporate book, credit card and personal loans, the pressure on asset quality might rise. However, the bank has adequate provisions to cover it from any unexpected shocks.
The bank increased its provisions by 63 per cent sequentially despite seeing no sharp slippage in asset quality. The net NPA ratio as of June 2012 was a low 0.2 per cent and the restructured loans were similarly minimal at 0.3 per cent.
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