Strong retail loan growth, stable margins and steady asset quality were the main positives to HDFC Bank’s March quarter results, even as fee income dipped.

The profit growth for the March quarter, at 30 per cent, was driven by a 20.6 per cent rise in net interest income (NII).

While the banking sector’s loan growth moderated to 14 per cent by March, HDFC Bank’s stood at 22.7 per cent. This was powered by a 27.3 per cent growth in retail loans. However, the wholesale lending business grew slower at 17 per cent during the same period.

Segment-wise trend

For the year, while all retail loans have grown at a healthy pace, signs of weakness emerged in the commercial vehicle and construction equipment businesses during the quarter. The slowdown in these industries saw the loans decline by 1.6 per cent sequentially. These segments now contribute 11.8 per cent of the overall individual loans (from 12.2 per cent last year).

The gold loan segment has jumped 65 per cent, contributing 3.6 per cent of the retail loans. While pure gold loan companies have recently come under pressure due to prices of the yellow metal falling, HDFC Bank has a relatively low exposure to this segment.

The core net interest margin (NIMs) for the quarter stood at 4.5 per cent, which is higher than expectations due to change in reporting during the March quarter.

Earlier, the bank adjusted the yield for any costs incurred on customer acquisitions, such as commissions. This is now treated as part of the operating expenses. Even on a like-to-like comparison the NIMs have improved 10 basis points from last year.

The current account savings account (CASA) ratio for the bank improved sequentially to 47.4 per cent from 45.4 per cent in the December quarter. However, on a yearly basis the CASA has declined from 48.4 per cent in FY 2012. CASA has consistently declined over last three years (52 per cent in FY2010).

Thus the market share gain by private peers is likely to challenge HDFC Bank’s competitiveness on cost of funds. ‘Other income’ declined during the quarter mainly due to pressure on the ‘fee income’ which declined by 1.4 per cent from the previous quarter.

HDFC Bank continued to maintain steady asset quality in spite of industry-wide concerns on loan delinquencies. Gross non-performing assets ratio stood at 0.97 per cent of loans in comparison to one per cent in the previous quarter. After provisioning, the net NPA ratio stood at 0.2 per cent, and the provision-coverage ratio held stable at 80 per cent during the March quarter.

radhika.merwin@thehindu.co.in

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