News Analysis

Q4 Comment : HDFC Bank ends the fiscal on a healthy note, delivering across parameters

Radhika Merwin | Updated on April 20, 2019 Published on April 20, 2019

But sharp moderation in the off-take of four/two wheeler loans has weighed on retail loan growth

BL Research Bureau

After delivering sub-20 per cent loan growth in the previous two fiscals, HDFC Bank managed a higher 24 per cent loan growth in the FY19 fiscal. But the bank’s retail loan portfolio that had been driving growth over the past two years, has seen a considerable slowdown in growth, owing to the underlying weakness in the four/two wheeler segments. Nonetheless, backed by strong uptick in corporate loan growth, a stable net interest margin, improving cost to income ratio, and healthy growth in fee income, earnings for the bank has grown at a steady 20.5 per cent year-on-year (YoY) in FY19.

Corporate loans drive growth

For HDFC Bank, retail loans have been a key driver of growth in the previous two fiscal years. But significant slowdown in growth across most segments---in particular auto, two wheeler, business banking and Kisan Gold Cards—has impacted retail loan growth in FY19.

After reporting a robust 27 per cent growth in FY16, overall loan growth moderated to 18-19 per cent levels in FY17 and FY18. Lower traction in corporate loans in FY17, had impacted loan growth--- in particular, in the December 2016 quarter HDFC Bank’s corporate loan growth was impacted by the unwinding of the leveraged product the bank offered under the FCNR deposit scheme as well as repayment of some of the working capital loans by SMEs, post demonetisation. While normalisation of some of these events, helped corporate loan pick up in the March 2017 quarter, loan growth for the full fiscal (FY17) had moderated to 19 per cent.

Read: HDFC Bank Q4 net profit up 23 per cent at Rs 5,885 crore

In FY18, corporate loans grew by a more modest 9 per cent. That said, growth in retail loans in FY17 and FY18 continued on a strong wicket, driving the overall growth for the bank.

In FY19, while retail loan growth has moderated, notable pick up in corporate loan growth has helped deliver a strong overall loan growth of 24 per cent. As a result retail loans now constitute 54 per cent of the overall loan portfolio (from 57 per cent in FY18).

While net interest margins have remained stable at 4.2-4.3 per cent, a drop in cost to income ratio and strong fee income growth have boosted the core performance of the bank in FY19.

Bad loans marginally up

Since FY17, gross non-performing assets (GNPAs) for the bank, in absolute terms, has been growing 30-40 per cent YoY. However a healthy growth in loans has kept delinquency ratio (GNPA as a per cent of loans) at bay. But the bank has been facing stress in its Agri portfolio, which may need a watch. That said, a higher provision coverage ratio of 71 per cent (floating provisions of Rs 1451 crore) mitigate risk. HDFC Bank’s GNPAs that had been hovering around the 1 per cent mark, in the past, has inched up slightly over the past one year. In the latest March quarter, the bank’s GNPA stood at 1.36 per cent of loans.

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