HDFC Bank Q1: Net Profit Up 16.1%, But Wave 2 Slows Growth Rate

Amid disruption from the second wave of the pandemic, the country’s largest private lender, HDFC Bank, on Saturday reported lower than estimated net profit of Rs 7,730 crore in the June quarter as the quality of bank assets deteriorated.

Although the bank’s net profit grew 16.1% year-on-year, the net profit missed the consensus estimate of Rs 7,931 crore by Bloomberg. The lender’s net interest income (NII), however, increased 9% year-on-year to Rs 17,009 crore, but remained stable sequentially.

The bank acknowledged that business activities remained sluggish for nearly two-thirds of the quarter due to Covid-19, resulting in a decrease in personal loan origination, third-party product sales, card spending and the effectiveness of collection efforts.

Lower business volumes, coupled with greater slippages, resulted in lower revenues, as well as an increased level of provisioning. Provisions in the quarter increased 24% year-on-year to Rs 4,831 crore from Rs 3,892 crore in the quarter last year.

Provisions and contingencies for the quarter included specific allowances for loan losses of Rs 4,219.7 crore and other provisions of Rs 611 crore. The bank’s core net interest margin (NIM) decreased by 10 basis points (bps) sequentially to 4.1%, compared to 4.2% in the March quarter.

Explain

Localized borders affect results

While last year’s quarter performance was hit hard by the nationwide lockdown, the June 2021 quarter was one when the bank’s finances were plagued with localized restrictions. These restrictions have led to issues such as increased customer defaults, lower sales of third-party products, lower collection efficiency, among others.

The quality of the lender’s assets deteriorated during the June quarter. The lender’s gross non-performing assets (APM) ratio fell 8 basis points to 0.48%, compared to gross non-performing assets of 0.4% in the previous quarter. However, the net NPA ratio improved 5 basis points to 0.45% from 0.5% in the March quarter. The total cost of credit ratio was 1.67%, compared to 1.64% in the March quarter and 1.54% in the quarter ending June 30, 2020.

The bank said it restructured loans worth Rs 7,800 crore, as part of the Reserve Bank of India’s unique restructuring plan. This included Rs 5,457 crore in retail loans and Rs 1,735 crore in business loans. He also restructured loans worth Rs 608 crore to other borrowers under the program.

The bank’s other income grew 54.3% year-on-year to Rs 6,288.5 crore. The four components of other income were fees and commissions of Rs 3,885.4 crore, income from foreign exchange and derivatives of Rs 1,198.7 crore, gain on sale or revaluation of investments of 601.0 Rs crore. Total advances increased 14.4% yoy to Rs 11.5 lakh crore, of which retail loans increased 9.3% yoy to Rs 4.58 lakh crore.

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