HDFC Bank Q2 net rises 30% on treasury gains

Beats Analysts' Expectations With Rs 687-Crore Net Profit; Bank Expects Over 20% Loan Growth By Year-End

 THE country's second-largest private bank HDFC Bank beat analysts' expectations with a 30.2% increase in net profit at Rs 687 crore for the quarter ended September 2009 against Rs 538 crore in the corresponding period of the previous year. The bank has indicated that its loan growth at the end of the year will be above 20%. But interest income is unlikely to keep pace as the focus is on safe loans to top corporates even as share of unsecured personal loans is set to fall. Earlier, an analyst poll by a news agency showed that they expected net profit of around Rs 660 crore. 
    The increase in profits came from treasury gains and a rise in fee income. Despite a jump in credit growth, the bank has not recorded any rise in interest income due to falling interest rates on loans. But, its net interest income rose marginally by around 5% to Rs 1,955 crore from Rs 1,867 crore as the bank increased the share of low-cost deposits. Its net interest margins were stable at 4.2%. 
"A big positive was high growth in the low-cost current and savings account deposits, which now form 47% of total deposits. The bank opened 90 branches and still kept the operating expenses flat, which is commendable," said Vaibhav Agrawal, vice-president (research, banking), Angel Broking. The stock, which has gained 3% in the past five trading sessions, closed Rs 2 higher on Wednesday at Rs 1,702.55. The loan growth for the second quarter has been higher at Rs 9,000 crore against Rs 5,000 crore in the first quarter. The advances at the end of the first quarter were at Rs 1,15,104 crore. In the first half, the bank has seen a 14.8% loan growth, as against a growth of 3.7% for the banking system. According to Paresh Sukthankar, ED, HDFC Bank: "The RBI has said that the loan growth for the year is likely to be at 20%. And the bank's growth is normally better than the industry average." 
    The bank is one of the few which continued to grow its retail lending book even after the financial crisis. However, the growth rate has come down and officials say they will be cautious in their lending to the unsecured retail loan portfolio of credit cards and personal loans. "The rate of growth in unsecured loans has come down to single digits. The growth will be slower than secured. We will be more cautious," said Mr Sukthankar. The unsecured loan portfolio, which was at 12% of the loan portfolio last year, has fell to 10.5% this year. 
    Currently, the growth areas in retail are auto loans and home loans, and to a lesser degree, business loans, loans against securities and two wheeler loans. The retail loan book is at Rs 62,652 crore and is now 54.4% of the advances. The other income saw a spurt of 56.4% to Rs 1,007 crore, as against a flat growth of interest income at Rs 3,991.9 crore. Mr Sukthankar said as growth comes back in the economy, he does not see the proportion of interest income falling. The bank has also been successful in bringing down its cost-to-income ratio from 55% last September to less than 50% now. There has been a marginal dip in employee expenses, even though the bank had hired 2,000 employees last quarter as the bank has been able to bring down its temporary staff.

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