HDFC Bank's June quarter results were in line with the Street's expectations. The net interest income of India's second-largest private bank grew by 19 per cent year on year (YoY) and net profit by 34 per cent YoY.
Despite an unfavourable macroeconomic scenario, the bank maintained its margins and focused on asset quality improvement. Angel Broking's banking analyst, Vaibhav Agrawal, says the bank has managed its book well and kept its asset quality strong, in spite of a slowdown in operating income growth. The management of the HDFC Bank is bullish about the bank's prospects. Executive Director Paresh Sukthankar says: "We expect credit growth to be at least 2022 per cent for this financial year with equivalent growth for retail and corporate segments. The current account savings account (Casa) ratio is likely to remain between 46 and 50 per cent." Though the bank is expected to post an earnings growth above 30 per cent in this financial year, the positives are already priced in the stock. The scrip, which touched a 52-week high on Tuesday, is likely to underperform peers like Axis Bank, says Agrawal.
LOAN BOOK GROWTH SLOWS DOWN
Compared to the same quarter ayear ago, banks' loan book growth halved to 20 per cent in the June 2010 quarter. This was primarily due to the 3G loans disbursed last year, leading to a higher base for the June 2010 quarter. Even on a sequential basis, loan growth fell 712 basis points (bps) due to rising interest-rate scenario. Thus, its NII grew at the slowest pace in the last five quarters. Deposit growth of 15.4 per cent YoY also came in lower, as the bank raised `3,650 crore of Tier-II capital through bonds, instead of pushing for wholesale deposits growth. The management expects deposit growth to pick up in the September quarter.
MARGIN, NET PROFIT STRONG
Strong Casa ratio of 49.1 per cent, along with a higher focus on retail deposits (vis-à-vis higher interest rate wholesale deposits) enabled the bank to maintain its net interest margins (NIMs) on a sequential basis. The good NIM performance came despite a 50-basis-point increase in savings rate (30 per cent of overall deposits), as well as higher cost of funds. Both the cost of funds and yields grew 30-40 bps sequentially, enabling the bank to hold on to its margins. For 2011-12, the bank's management expects NIMs to stay in the narrow range of 3.9-4.3 per cent.
A fall of 20.1 per cent YoY in provisions to `444 crore due to improvement in asset quality was the key driver of bottomline growth, which came in slightly ahead of the Street's expectations. Fee income and forex revenues also posted decent growth of 16 per cent and 34 per cent YoY, respectively. However, it booked losses on its investments in bonds due to rising yields. The cost-to-core income ratio also improved by 40 bps over June 2010, due to effective management of operating expenses by the bank.
ASSET QUALITY HEALTHY
The bank continued to witness an improvement in asset quality as its gross as well as net non-performing asset (NPA) ratio were stable sequentially. On a y-o-y basis, both these ratios were down by 10 bps and 20 bps, respectively. While the provision coverage ratio came in at a healthy 83 per cent, its capital adequacy ratio was also stable. The bank registered astrong traction in its retail segment, which grew 45 per cent YoY, while growth in corporate and treasury revenues was above 40 per cent each.
