HDFC Bank posted a 5% increase in Q2 net profit to Rs 19,510 crore, missed profit estimates due to lower treasury gains, while credit growth reached 16.3% amid C-suite leadership changes.
HDFC Bank’s net profit for the quarter ended September increased by nearly 5% on year to Rs 19,510 crore. The bank missed the analyst estimate of Rs 19,606 crore as per Bloomberg for the bottom line. Explaining the relatively muted profit growth despite strong business expansion, the management pointed to lower treasury gains compared with the year-ago quarter. “Normalised for the treasury trading gains, you see the year-on-year profit growth is 12.6%,” the management said.
The net interest income was up 9.7% on year to Rs 34,619 crore for the reporting quarter. Other income was also lower by 3.6% on year due to lower treasury gains. Net interest margin stood at 3.16% for the July-September quarter, lower as against 3.30% a quarter ago. Analysts had pegged the net interest margins at 3.37% for the reporting quarter. “The margin trajectory should be upwards from the next quarter onward,” outgoing MD and CEO Sashidhar Jagdishan said in the post-earnings call on Saturday.
The bank's margins had been affected by a higher proportion of non-retail assets and liabilities, along with the impact of FCNR(B) deposit mobilisation. While the upward interest rate trajectory should support margins, Jagdishan cautioned that the full benefit would take a few quarters to materialise as the bank gradually changes its asset mix. The management also acknowledged that margins were below its earlier expectations and indicated that recovery could take another couple of quarters.
The gross advances of the bank were up 16.3% on year to Rs 32.20 lakh crore as on September 30 and the total deposits were up 18.8% on year to Rs 33.27 lakh crore. Within gross advances, retail book grew 11.7% on year, small and mid-market book rose 24% and the corporate and other wholesale book was up 16.4%. Retail assets grew 17% on year. This includes the FCNR leverage loans of Rs 54,800 crore, excluding which the growth would be 9.1% on year and 4.3% on quarter.
The bank has adopted a cautious approach to home loan pricing amid intense competition. “We have been happy to let some of these deals go where the margin doesn't make any sense,” Jagdishan said, adding that the bank was not necessarily competing on pricing. He indicated that the incoming management could explore selling down or securitising part of the bank's home loan portfolio, subject to market conditions and investor appetite.
Such a strategy could allow the lender to compete more aggressively on home loan pricing while managing its balance sheet exposure. Within deposits, the current account and savings account (CASA) deposits grew by 10.8%, with savings account deposits at Rs 7.16 lakh crore and current account deposits at Rs 3.36 lakh crore. Time deposits stood at Rs 22.76 lakh crore, an increase of 22.8% over the corresponding quarter of the previous year.
CASA deposits accounted for 31.6% of total deposits as of September 30. The bank said the landed cost of its FCNR(B) deposits was between 6% and 6.25%. On relatively lower mobilisation compared with some peers, Jagdishan pointed to the bank's limited overseas presence. “We probably did whatever we could with the kind of resources that we had,” he said, adding that expanding the bank's overseas footprint could be part of its future strategy.
Provisions and contingencies rose by 2.1% on year and 16.8% on a sequential basis to Rs 3,574 crore in the reporting quarter. The asset quality improved during the quarter with the gross non-performing asset (GNPA) ratio at 1.11% as against 1.17% a quarter ago and the net NPA ratio stood at 0.37% as 0.41% a quarter ago. The total capital adequacy ratio of the bank stood at 18.9%, with tier-1 capital ratio at 17.2%.
Average liquidity coverage ratio stood at 113% as on September end. Incoming MD and CEO Anup Bagchi said much of the bank's post-merger balance sheet transformation was complete, although some work remained. “Much of it is behind us. Some more work needs to be done,” he said, adding that his immediate priority would be to engage with regulators, customers and other stakeholders before formulating his strategy.
Addressing concerns over senior management exits, Jagdishan said the bank's operations were driven by institutional processes rather than individual personalities. “The depth in management is so large that the continuity and the ethos of the institution will be intact as well,” he said. Dy MD Bharucha quits Mumbai: HDFC Bank on Saturday said its Deputy Managing Director Kaizad Bharucha has sought to step down from the bank with effect from the close of business hours on December 31, marking the end of an association spanning more than three decades.
The bank's Governance, Nomination and Remuneration Committee and board of directors have accepted his request, which will be forwarded to RBI for approval. Bharucha's departure comes amid a leadership transition at the country's largest private sector lender, with MD and CEO Sashidhar Jagdishan set to retire later this month and Anup Bagchi scheduled to take charge on October 27. Separately, the board approved the reappointment of former RBI Executive Director Lily Vadera as an independent director for three years, from November 26, subject to shareholder approval.
