HDFC Bank Net Jumps 31%, but Margin Pressure Remains

LOANS MAY GET CHEAPER Bank says it may lower base rate sometime this quarter     HDFC Bank, the nation's most valuable lender, posted the customary 30% net profit growth for the 34th consecutive quarter led by corporate loans and lower provisioning for bad loans. But the bank said there could be pressure on profit margins as rival lenders turn aggressive in selling retail loan products.  The bank's net profit grew 31% to . 1,560 crore, meeting analyst estimates, from . 1,200 crore. Net interest income, the difference between what it paid for funds and what it earned from lending, grew 27% to . 3,732 crore.  But the bank that has reported a steady net profit growth, said profit margins could come under pressure, but may not dent it substantially.  "We believe margins should remain in the range of 3.9-4.2%, though pulls and pressures remain," said Paresh Sukhtankar, executive director, HDFC Bank. "They should not be strong enough to put us off the track."  Indian banks are scrambling to raise their retail loans as corporate demand for loans fall due to economic slowdown. With public sector banks joining the rate war, most banks will see a pressure on their margins.  "Their execution remains good and that too despite a big balance sheet," said Rajat Rajgarhia, director-research, Motilal Oswal Securities. "They are likely to grow at a similar rate for the next two years. While they continue to grow in old retail products, they are building strength in other product categories as well."  HDFC has also said that it may lower its base rate, the level below which it can't lend to customers.  "Sometime in the quarter, we have to recalibrate our own base rate," said Sukhtankar. "We were one of the first banks to pass on the benefits to the customers after the first round of cut in cash reserve ratio," he added. The asset quality of the bank improved contrary to the overall banking system, which also helped it achieve profit growth as it provided lesser amount for bad loans.  Provisions were also lower at . 293 crore, from . 366 crore a year earlier. The bank's provision coverage is at 82%. Gross non-performing assets fell marginally to 0.9% of total loans, from 1%. Net non-performing asset ratio remained stable at 0.2% of total assets.  The bank traditionally known for its retail products, got a fillip from corporate lending as pretax profit jumped 62% to . 1,088 crore, from . 670 crore. Pre-tax profit from retail lending rose 14% to . 1,089 crore.  Bank's loan book grew 23% to . 2.3 lakh crore and deposits grew by 19% to . 2.7 lakh crore. Low-cost deposits or current account and savings accounts deposits ratio to total deposits stood at 45.9%. Net interest margin was 4.2%, lower than 4.3% in the first quarter of the current financial year.