HDFC Bank: A well-rounded performance

It was during the September quarter of last fiscal that HDFC Bank raced ahead of its peer, ICICI Bank, which until then enjoyed the status of the largest private bank in terms of loans.

By clocking 22-27 per cent year-on-year growth in loans over the last seven-eight quarters vis-à-vis ICICI Bank’s 13-15 per cent, HDFC Bank has held the top slot since last September.

Pausing from this breathless run, HDFC Bank delivered a marginally lower growth in loans in the September quarter at 18 per cent, mainly led by lower traction in corporate loans. While this has dampened sentiment a bit, HDFC Bank’s overall performance remains noteworthy on several counts.

Constraints faced by public sector banks in particular, due to lack of capital and worsening asset quality, have presented ample growth opportunities for private lenders in recent times. And HDFC Bank has been able to make the most of this, gaining nearly two percentage points market share in overall bank lending over the past eight quarters or so.

Though loan growth in the September quarter was a shade lower it is unlikely to dent its market presence.

Two, the growth in loans continues to be healthy across segments. While the retail segment has become more competitive over the past couple of quarters, for HDFC Bank all segments within retail continue to fire. While auto and two-wheeler loans grew by 23 per cent, personal loans rose by a robust 40 per cent.

Credit card growth, however, came off slightly from 26 per cent in the June quarter to 18.5 per cent in the September quarter. But HDFC Bank continues to enjoy the largest market share in the high-margin credit card industry, at ₹21,336 crore of loan book. Also, healthy traction in high-yielding retail loans will continue to keep the bank’s margins on a sound footing.

On the corporate side, a large portion of the bank’s lending has always been for working capital financing. After a growth (year-on-year) of over 20 per cent over the past three to four quarters, growth in these loans slowed in the September quarter to 14.6 per cent. A higher base and more corporates raising funds from the bond market have impacted the growth in this segment.

In the December quarter there can also be some impact on account of the unwinding of the leveraged product it offered under the FCNR deposit scheme.

HDFC Bank raised $3.4 billion through FCNR deposits, which is almost 10 per cent of the entire amount raised by all banks through this facility. To sweeten the deal, the bank extended an overdraft to NRI depositors, with a lien on their deposits.

In the December quarter, this leveraged product will be unwound to the tune of $1.9 billion or ₹12,000 crore. However, the impact owing to this will be minimal as overseas loans account for just 6.7 per cent of HDFC Bank’s total loans. Also, as the yields on such loans are lower than those earned on domestic loans, there will be no impact on the bank’s overall net interest margin.

HDFC Bank has also been clocking earnings growth of 20 per cent year-on-year, consecutively for eight to nine quarters now. This is the new normal for the bank, which had been logging 30 per cent growth in earnings until the mid of 2013-14.

In the September quarter, despite a lower loan growth, the bank managed to report 20.4 per cent growth in earnings, aided by stable asset quality. The bank’s net interest margin fell to 4.2 per cent in the September quarter, from 4.4 per cent in the June quarter, mainly due to the additional liquidity the bank has built up for meeting redemption of its FCNR deposits.

However, the bank’s margins still remain at 4.2-4.3 per cent, the range at which it has been operating for many quarters now.