COMMENT. HDFC Bank closes FY16 on an upbeat note

At a time when both loan and deposit growth for the industry is languishing at 9-10 per cent levels, HDFC Bank continued to outperform by a wide margin in the fourth quarter, as in the past.

With loan growth of 27 per cent year-on-year and deposit growth of 21 per cent in the March 2016 quarter, HDFC Bank ended fiscal 2016 on a buoyant note. Stable margins and low loan delinquency through the year also helped the bank deliver 20 per cent growth in profit for the full year, on par with the growth recorded last year.

Well-rounded HDFC Bank delivered higher loan growth in FY16 compared with the previous year. The 20 per cent loan growth in FY15 was led by the corporate segment rather than retail. But in 2015-16, it was led by both retail (29 per cent) and corporate (27 per cent) loans. All segments within retail fired through the year.

Lending to the CV segment, which was impacted due to the slowdown in industry volumes, picked up steadily in every quarter of FY16. From 11 per cent fall in 2014-15, the CV/CE segment bounced back to grow at 14.8 per cent in 2015-16.

A large portion of the bank’s lending to the corporate segment relates to working capital financing, which has been on a strong wicket.

The new normal Aside of a steady loan growth, HDFC Bank maintained its net interest margin at 4.2-4.3 per cent through the year, including the March quarter. While the full-year margin at 4.3 per cent is lower than the 4.4 per cent recorded last year, it is nonetheless a healthy trend given the substantial cut in lending rates during the year.

HDFC Bank’s robust share of low-cost current and saving account (CASA) deposits at 43 per cent in 2015-16 (though a tad lower than last year) has aided margins. The bank is also well placed to safeguard its margins under the new MCLR (marginal cost of funds-based lending rate) regime, which came into effect from April. For HDFC Bank, about 70 per cent are fixed loans, which reduce the interest-rate risk.

The bank’s asset quality has also not thrown any nasty surprises and remains amongst the best in the industry. The bank’s gross non-performing assets (GNPAs) stood at 0.94 per cent of loans in the March quarter, within its past range of 0.9-1 per cent.

Strong loan growth, stable margins and good asset quality led to 20 per cent year-on-year growth in earnings in the March quarter — the new normal for the leading private lender. From a 30 per cent growth in earnings in the past, HDFC Bank has been delivering 20 per cent growth in the last two years.