HDFC Bank posts slowest profit growth in 15 years - Livemint

HDFC Bank is known for the clockwork-like consistency with which it reports year-on-year profit increases of around or in excess of 30% every quarter. Photo: Pradeep Gaur/Mint

Mumbai: HDFC Bank Ltd , India's second largest private lender by assets, posted the slowest net profit growth in at least 15 years in the quarter ended 31 March because of a higher tax surcharge and the absence of tax credits available in the year-ago period.

Profit rose 23% to Rs.2,327 crore in the three months from Rs.1,890 crore in the year ago, HDFC Bank said on Tuesday. The profit came on the back of a 15% gain in net interest income—interest earned on loans minus that paid on deposits—on brisk demand for loans from individuals, small businesses and farmers.

The gain fell short of the Rs.2,384 crore estimate in a survey of 29 analysts by Bloomberg. The pace of profit growth was the slowest since at least 1999, according to available records.

"Our profit before tax growth is still 31%, but net profit (increase) is sub-25% due to higher effective tax rate, which has increased from 29% last year to 33.4% this year," deputy managing director Paresh Sukthankar said in a conference call. The bank was also hit by the absence of tax credits, he said.

HDFC Bank is known for the clockwork-like consistency with which it reports year-on-year profit increases of around or in excess of 30% every quarter. The bank has largely bucked the economic downturn that has caused demand for loans to slow and bad loans to increase.

The lender's net interest income increased to Rs.4,953 crore in the fiscal fourth quarter from Rs.4,295 crore a year ago, driven by average asset growth of 20%. Its net interest margin—the difference between the rate charged for loans and that paid for deposits—was 4.4%.

HDFC Bank's loan book increased 26% to a total of Rs.3.03 trillion during the quarter, driven by a 21% increase in credit card disbursal, 25% increase in mortgages and 16% increase in personal loans.

Demand for short- and medium-term loans by firms for working capital needs helped expand the bank's loan book. Corporate loans account for 47% of the bank's loan book, up from 44% a year earlier.

Other income, or income earned through fees, trading in foreign exchange and gains on revaluation or sale of investments, rose 11% to Rs.2,001 crore from Rs.1,804 crore in the year-earlier period. The bank also recovered Rs.195 crore of non-performing loans in the quarter, up from Rs.155 crore in the same period last year.

Net non-performing assets (NPAs), at 0.3% of net advances at the end of March, were little changed from 0.2%.

Although HDFC Bank's asset quality remains among the best in the industry, the high percentage of retail loans in its portfolio needs to be watched, said Rahul Shah, vice-president, equity advisory group, Motilal Oswal Securities Ltd, a brokerage.

HDFC Bank still remains among the top investment picks in the banking sector because of its "healthy retail business, strong capitalization and liability franchise, management's stability, profit and loss strength to absorb credit cost risk", Shah said.

Sukthankar said the bank will continue to grow 3-5 percentage points faster than the banking system at large, but a large part of growth will depend on overall economic growth.

The bank hasn't seen demand for loans to finance capital expenditure on new projects, he said. "For growth to pick up from the current 4.8%, we will need capital expenditure to happen," he said.

Although the pace of profit growth at the bank has slowed, it remains robust because it comes on a higher base and in a difficult market, said Daljeet Singh Kohli, head of research at India Nivesh Securities Ltd, another brokerage.

"A slowdown in the pace of growth was expected and is not surprising, but the positive fact is that they have chosen not to sacrifice margins for higher growth. HDFC Bank remains the pace-setter for other banks in the sector," Kohli said.

Economic growth slumped to 4.5% in the year ended 31 March 2013, and is forecast by the Reserve Bank of India (RBI) to have come in below 5% in the following year.

"There has been movement and improvement in sentiment as well," Sukthankar said. "Things have stopped getting worse and are marginally getting better but we need more stability. For example, car sales have shown some signs of picking up because of new models and as sentiment has picked up. Since auto loans make up the largest 20-22% of our retail loans, we could see higher growth from there."

HDFC Bank is also awaiting approval from the foreign investment promotion board to raise overseas shareholding limit to 67.55% from 49%. "If the approval does not come through, it means we will remain where we are today, meaning foreign investors can buy our shares only among themselves and not from domestic investors," Sukthankar said. "We are still waiting for a response and have not thought about what to do if we don't get it."

HDFC Bank shares rose 1.36% to Rs.726.35 on BSE, while the benchmark Sensex fell 0.03% to 22,758.37 points. The BSE Bankex ended at 14,846.18, up 0.16%.

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