News Analysis

HDFC Bank delivers steady earnings growth

Radhika Merwin, BL Research Bureau | Updated on July 20, 2019 Published on July 20, 2019

Though there has been some moderation in credit off-take

Despite some moderation in loan growth-- owing to the underlying weakness in the four/two wheeler segments—and significant rise in provisions, HDFC Bank managed to report a healthy 21 per cent YoY growth in net profit in the latest June quarter. A lower cost to income ratio and boost from other income has aided earnings. While bad loans in absolute terms have increased 23 per cent YoY, a steady growth in loans has kept delinquency ratio (GNPA as a per cent of loans) under check at 1.4 per cent. The bank’s healthy provision cover also continues to lend comfort.

Retail loan growth slows

After delivering sub-20 per cent loan growth in the previous two fiscals, HDFC Bank had managed a higher 24 per cent loan growth in the FY19 fiscal. The growth was backed by strong uptick in corporate loan growth (31 per cent), even as there was a considerable slowdown in retail loan growth (19 per cent).

The spurt in corporate loans in the March quarter was expected to moderate. In the latest June quarter, corporate loans have grown by 19.6 per cent while retail loans have grown by a slower 16.5 per cent. Hence the overall loan growth has slipped to 17 per cent YoY. Slowdown in retail loans has been led by segments such as auto, two wheeler, and Kisan Gold Cards.

Nonetheless, the credit growth is healthy, given the persisting challenges in the sector.

Net interest margins have more or less remained stable at 4.3 per cent levels. The steady fall in the bank’s cost to income ratio is a positive—from 44.3 per cent levels in FY16, cost to income fell to 39.9 per cent in FY19; it has trended lower to 39.4 per cent in the latest June quarter.

While the bank’s gross non-performing assets (GNPAs), in absolute terms, has been growing at 30-40 per cent annually over the past two years, strong growth in loans has kept delinquency ratio at bay. But the bank has been facing stress in its Agri portfolio. That said, a higher provision cover (floating provisions of Rs 1451 crore) mitigate risk. The bank’s general provisions of Rs 200 crore includes additional provisions of Rs 85.9 crore for standard advances to the NBFC / HFC sector.

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