hdfc bank: HDFC Bank Q1 takeaways: Profit growth at multi-quarter low; NIM dips and more

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NEW DELHI: The impact of the Covid-19 disruption was all visible on HDFC Bank’s June quarter earnings, which showed profit growth at the slowest pace since the December quarter of 2016. Net interest income (NII) grew in single digits against the market expectations of double-digit expansion. The private lender missed Street estimates on net interest margin (NIM) growth. Provisions grew while gross non-performing assets came in higher than expectations.

Here’re key takeaways from the HDFC Bank results.

Profit growth at multi-quarter low

HDFC Bank’s standalone profit growth of 16.08 per cent in June quarter was its lowest since the December quarter of 2016, when it had reported 15.14 per cent bottom line expansion, thanks to a rise in provisions. This was the sixth quarter when the private lender reported a sub-20 per cent profit growth. The profit figure at Rs 7,729.60 crore came in lower than Rs 7,900 crore estimated by analysts in an ET NOW poll. The bank reported Rs 6,658,60 crore profit for the year-ago quarter.

Covid 2.0 overshadowed 2/3rd of quarter
The private bank said the second wave of Covid disrupted business activity for close to two-third of the quarter, leading to a drop in efficiency in collection efforts and higher levels of provisions. Covid 2.0 disruptions led to a decrease in retail originations, sale of third party products, card spends, efficiency in collection efforts, it said. “The lower business volumes, coupled with higher slippages, resulted in lower revenues, as well as enhanced levels of provisioning,” the bank said.

Asset quality
deteriorates, provisions rise

Weakness in asset quality was quite visible as gross non-performing asset (NPA) as percentage of gross advances came in at 1.47 per cent compared with 1.32 per cent in the March quarter, and 1.36 per cent in the year-ago quarter. The bank said it had to made provisions and contingencies worth Rs 4,830.8 crore for the quarter compared with Rs 3,891.5 crore in the year-ago quarter, and Rs 4,694 crore in the March quarter.

NIM falls to 4.1%, misses estimates
Net interest income for the bank came in at 4.1 per cent. This was only the third time since the beginning of FY17 that the bank’s NIM came in this low. The other two times that the bank reported a low NIM of 4.1 per cent were Q2FY21 and Q3FY17. HDFC Bank has largely reported NIMs in the range of 4.2-4.4 per cent in the previous five years. Most analysts were expecting NIM for the bank to come in the 4.2-4.3 range.

Other income jumps 54% YoY
Other income (non-interest revenue) for the quarter grew 54.31 per cent to Rs 6,288 crore from Rs 4,075.30 crore. This was quite higher than 25.88 per cent YoY growth in other income seen in March quarter, 11.6 per cent in December quarter and 9.01 per cent in September quarter.

Among the sub-heads, foreign exchange and derivatives reveunes jumped to Rs 1,198.7 crore against Rs 436.6 crore YoY, fee and commission revenues rose to Rs 3885.4 crore against 2230.7 crore YoY while mislennious income including recoveries and dividend almost doubled to Rs 603.5 crore against 321.30 crore. Gain on sale/revaluation of investments showed decline.

NII misses estimates, CAD solid at 19.1%

Net interest income (NII) for the quarter rose to Rs 17,009 crore from Rs 15,665.70 crore YoY, led by 14.4 per cent rise in advances and a core net interest margin of 4.1 per cent, the bank said in a BSE filing. The balance sheet size of the bank at the end of the quarter stood at Rs 17,53,941 crore as of June 30, up 13.5 per cent over Rs 12,45,103 crore as of June 30, 2020. Capital adequacy ratio as per basel III guidelines stood at 19.1 per cent as of June 30 compared with 18.9 per cent in the year-ago quarter.

Analyst reaction: Impact likely in Q2 too
Asutosh Mishra, Institutional Equity at Ashika Stock Broking, said he does not see any problem with the asset quality of the bank and believes a 13 per cent YoY rise in provisions in the light of Covid 2.0 wave was manageable, as the bank’s operating profit growth is more than adequate. Mishra expects some impact of the second wave will also be visible in HDFC Bank’s September quarter numbers but believes smaller banks will be hit more by the second wave.

“The most important thing we will be watching out in the management commentary is how has been the collection efficiency in smaller loans front. Banks have utilised ECLGS facility a bit. We would be seeking clarity over what are the terms and conditions such loans were disbursed,” he told ET NOW.

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