MUMBAI: HDFC Bank, a private sector lender, will be careful about the quality and pricing of its wholesale and retail loans. The bank’s Chief Financial Officer, Srinivasan Vaidyanathan, noted that intense competition is reducing profitability on wholesale loans.
Credit Demand
“Credit demand in the wholesale category is high, but the rates are low,” said Vaidyanathan. “The spread over government securities is thinner, and competition pushes it even lower. We want to be careful about how we price and choose loans. In the retail segment, we are leaders in mortgages, but we need to be cautious about credit quality on the unsecured side. We are careful with credit and adjust accordingly.”
HDFC Bank reported a 52.6% growth in advances in the June quarter, mainly driven by retail loans, which more than doubled. Corporate and wholesale loans grew by 18.7% over the year. Total loans stood at ₹24.8 lakh crore.
Rise in Profit
The bank’s profit rose by 35% to ₹16,175 crore in the June quarter, helped by lower provisions and strong net interest income, exceeding the ₹15,652 crore Bloomberg estimate. The previous year’s profit was ₹11,952 crore. This is the first time HDFC Bank’s earnings included the numbers from the former Housing Development Finance Corp. after their merger on July 1, 2023.
Rising Liabilities
Deposit growth was slower than loan growth, with liabilities rising by 24.4% over the year to ₹22.83 lakh crore, reflecting a broader concern by the central bank. “The first quarter is a low accretion quarter for the banking system,” said Vaidyanathan. “Available liquidity in the system was negative half a trillion rupees. Our retail branches drive deposits and contribute 84% of the total deposits. We want the branches to drive deposits and avoid looking for non-retail high-cost deposits.”
Asset Quality
Regarding asset quality, the gross non-performing asset (NPA) ratio increased to 1.33% at the end of the quarter from 1.17% a year ago. Net NPAs rose to 0.39% from 0.30% a year ago. Provisions on loans fell to ₹2,602 crore from ₹2,860 crore a year earlier.
The bank reported net interest income (NII) of ₹29,837 crore, up 26.4% over the year. Net interest margin (NIM) improved to 3.47%.
“A small increase in NIM was positive, helped by a sharp sequential decline in borrowings,” said Pranav Gundlapalle, head of India Financials at Bernstein. “Borrowings for the bank declined by nearly 10% sequentially, which helped support the rise in NIM.”
Fee Income
Fee income was down 12% sequentially, raising questions about the sustainable level of fee income from the combined entity, he said.
“The deposit growth, though better than the system, was lower than the growth rate needed for faster normalization of the bank’s liability profile,” Gundlapalle added.
Reserve Bank of India governor Shaktikanta Das highlighted concerns about deposits not keeping pace with credit. “Households and consumers who traditionally leaned on banks for parking or investing their savings are increasingly turning to capital markets and other financial intermediaries,” he said. “Banks have sought to fill the credit-deposit gap by increasing their reliance on other sources like short-term borrowings, certificates of deposits, etc.” This poses challenges to liquidity management, he noted.
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