HDFC Bank's profit rises 4.7% in Jagdishan's last quarter as margin slips to 3.16%

HDFC Bank’s net profit rose 4.7% to ₹19,510 crore in the July-September quarter, a modest gain held back by thinner margins and a steep fall in trading income. They are the last results under managing director and chief executive Sashidhar Jagdishan, whose term ends on 26 October. Anup Bagchi is due to succeed him.

The profit was a shade below what analysts had pencilled in. A Bloomberg consensus had put it at ₹19,606 crore. Leave out treasury gains, and profit grew 12.6% from a year earlier. On a consolidated basis, which takes in the bank’s subsidiaries, profit rose 5.55% to ₹20,700 crore.

Where the squeeze came from

Net interest income, the gap between what the bank earns on loans and pays on deposits, rose 9.7% to ₹34,620 crore. The net interest margin on total assets slipped to 3.16% from 3.26% in the June quarter.

Treasury trading gains, which had padded the year-ago quarter, shrank to ₹780 crore from ₹2,390 crore. Fees and commissions rose to ₹9,690 crore from ₹8,840 crore. Provisions climbed to ₹3,574 crore from ₹3,010 crore in the previous quarter.

Bad loans eased. The gross non-performing assets ratio improved to 1.11% from 1.17% in June and 1.24% a year ago. Net NPAs fell to 0.37% from 0.41%.

A bigger balance sheet

The bank grew faster than its profit. Gross advances rose 16.3% from a year earlier to ₹32.19 lakh crore, and deposits rose 18.8% to ₹33.27 lakh crore. Term deposits did most of the lifting, up 22.8%, while current and savings account balances grew 10.8% to ₹10.52 lakh crore.

Part of that came from foreign currency non-resident (FCNR-B) deposits. The bank raised $11.5 billion through the Reserve Bank’s swap window and its overseas branches lent $5.7 billion against them. It also sold $2.5 billion of US dollar bonds. Capital adequacy stood at 18.9%, against 20% a year earlier.

What the market makes of it

The shares closed at ₹728.85 on Friday, ahead of the numbers, and are down nearly 27% this year. Brokerage Bernstein called it “another quarter of weak earnings growth”.

Dharmesh Kant of Chola Securities did not expect a quick turn in sentiment. “A re-rating will take time. I don’t think it will happen immediately,” he said.

Markets reopen on Monday, when investors will get their first chance to react to the results of HDFC Bank, ICICI Bank and Axis Bank, which with YES Bank make up over 40% of the Nifty Bank index. Jagdishan’s term ends a week later.