Banks’ quarterly performance has kept investors on tenterhooks through the 2016 fiscal, due mostly to nasty surprises on the asset quality front. But HDFC Bank, through its steady performance over the past year, has lent comfort to investors. The bank has begun yet another challenging year on an upbeat note, delivering a strong 20 per cent growth in earnings in the June quarter. There hasn’t been any deviation from its past performance in most of the metrics -- loan and deposit growth, net interest margin, and asset quality. Given that the bank scores high on each of these parameters, the status quo has only given investors reason to cheer.

HDFC Bank, for instance, has been clocking earnings growth of 20 per cent year-on-year consecutively for eght-nine quarters now. This is the new normal for the bank, which had been logging 30 per cent growth in earnings in the last couple of years until the middle of 2013-14.

The healthy growth in earnings has come on the back of strong traction in loans, despite the weak credit growth for the overall sector. Public sector banks that contribute a chunk -- about three-fourths -- of the total credit, have been cautious in lending to the corporate segment, which has dragged growth for the entire sector. Few private banks including HDFC Bank, on the other hand, have been in a sweeter spot, thanks to the higher exposure to the retail segment and focus on working capital financing in the corporate segment. HDFC Bank’s loan grew by 23 per cent in the June quarter. This was within the broad range of 22-27 per cent year-on-year growth that the bank has been clocking in the last four-five quarters. The bank has been delivering 5-6 per cent compounded quarterly growth in loans for many quarters now.

The loan growth in the June quarter was led by both the corporate and retail segment (both grew by about 24 per cent). All segments within retail have been firing, though growth in credit cards and personal loans (26 per cent and 40 per cent respectively) was far higher than that reported in the auto and CV/CE segment (20 per cent and 14 per cent correspondingly). On the corporate side, a large portion of the bank’s lending has always been for working capital financing. Hence, this segment continues to deliver healthy growth.

Healthy traction in deposits

Aside from steady loan growth, HDFC Bank has delivered net interest margin (NIM) of 4.4 per cent for the June quarter. This is within the narrow range of 4.2-4.3 per cent that the bank has been operating for many quarters. Maintaining steady and industry leading margins is particularly noteworthy given the overall cut in lending rates over the past year or so. The bank’s steady growth in deposits (5-6 per cent average quarterly growth), particularly in low-cost current and savings accounts (CASA) deposits, has aided margins.

In the June quarter, deposits grew a tad lower at 18 per cent over the previous year, against the 21 per cent logged in the March quarter. This is, however, much higher than deposit growth at the system level of 9-10 per cent. The management has indicated that it would grow its deposit base commensurate with the growth in its credit. It would also not look at aggressively growing its deposits at a time when growth at the system level continues to languish at anaemic levels. Given that the bank has deposits of over Rs 5.7 lakh crore, this is a prudent move and can aid margins going ahead.

HDFC Bank’s asset quality has also not thrown any nasty surprises and remains the lowest in the industry. While the bank’s gross non-performing asset (GNPA) has inched up marginally to 1.04 per cent of loans as of June 2016, from 0.94 per cent in the March quarter, it is within its past range of 0.9-1 per cent.

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