HDFC Bank Q3 meets street expectations: NII jumps 24 per cent

India’s second largest private sector lender by asset HDFC Bank, posted its Q3FY16 numbers on Monday. The results were in line with the analysts' expectations, as profits increased by 20 per cent and Net Interest Income (NII) shot up by 24 per cent on a yearly basis. However, asset quality deteriorated further owing to RBI directives on bad loan treatment.

HDFC Bank’s third quarter NII, the difference between interest earned and interest expended grew by a strong 24 per cent to Rs 7068.51 crore during the quarter, as compared to Rs 5699.93 crore in the previous year, due to a robust pick-up in loan advancement. Other income (non-interest income), which comprises fees; commissions, etc. also rose by 13.3 per cent to Rs 2,872.19 crore on Q-O-Q basis (quarter on quarter). Net interest margin, a key indicator of bank’s profitability, declined to 4.3 per cent from 4.4 per cent in the corresponding quarter a year ago. This was primarily due to a decrease in the base rate which has fallen 65 basis points in the past year, leading to margin contraction. 

Bank's profit after tax increased by 20 per cent to Rs 3356.84 crore for the quarter in review from Rs 2794.51 crore attained in the same period of previous fiscal. The bank has reported a healthy growth in profits due to decrease in provisioning on a quarterly basis; and also owing to a strong progress witnessed in loans advancement which has propagated by 25.7 per cent over the year. Both segments of the bank portfolio i.e. retail loan; and wholesale loans grew 29.2 per cent and 18.9 per cent respectively. Total deposits for the quarter in review increased by 26.5 per cent. CASA (Current and Savings Account) deposits too saw a healthy traction, as it increased by 29.7 per cent a Y-O-Y (year on year) basis.

Sequentially, provisioning for bad loans decreased by 4 per cent to Rs 653.88 crore from Rs 681.29 crore in the September quarter of the same fiscal. However, on a yearly basis provisioning grew by 17 per cent. Bank's asset quality worsens further as HDFC Banks gross Non- Performing Assets (NPAs) as a percentage of gross advances rose slightly by 6 basis points, sequentially to 0.97 per cent; and net NPA’s were augmented by 4 basis points to 0.29 per cent. In absolute terms, gross NPA shot up by 11 per cent Q-O-Q to Rs 4255.2 crore, as against Rs 3827.77 crore. Whereas net NPA too climbed up by 21 per cent sequentially to Rs 1260.6 crore, from Rs 1037.68 crore Q-O-Q. Total restructured loans were at 0.1 per cent of gross advances as of the quarter ending in December.

Most of the banks are expected to report higher bad loans in the Q3 and Q4 of the fiscal as the Central Bank has asked all the banks to treat some of the troubled loan accounts as if they were non-performing loans and make required provisions. 

Reacting to the Q3 results, shares of HDFC Bank were trading with gains of close to 1 per cent, to hit an intra-day high of Rs 1046.70 in the afternoon hours of trade; before closing at Rs 1040 on NSE. Shares of HDFC Bank have remained resilient in the equity market collapse as compared to its peers like Axis Bank and ICICI Bank which have corrected anywhere between 25 to 35 per cent in the past one year, primarily due to asset quality concerns. HDFC Bank has outperformed the broader market indices, and is all set to continue with its strong performance amidst a stressed banking sector.