HDFC Bank posts lowest-ever profit growth on FCNR, demonetisation

Mumbai: Private sector HDFC Bank Tuesday reported its lowest-ever quarterly profit growth at 15 percent at Rs 3,865.3 crore for the December quarter, pulled down by a margin compression following the note-ban and foreign currency deposit redemptions.

The city-headquartered lender, which had made a name for itself by consistently delivering 30 percent profit growth for more than 32 quarters without a break till about two years ago, and then slipped to the 20 percent levels with sluggish economic growth, saw its margins narrowing by 10 bps to 4.10 percent during the third quarter ended December 31.

The Aditya Puri-headed bank also saw redemptions of USD 3 billion worth of NRI deposits raised under a special window opened by the RBI in 2013 which led to a USD 2-billion reduction in the foreign currency loan book. HDFC Bank had raised the largest amount through this window.

The lender saw a 37 percent surge in the current and saving account balances which helped the share of the low-cost deposits ratio to 45 percent after the November 8 demonetisation. It can be noted banks were not able to benefit from the surge fully because of 100 percent CRR on new deposits till December 8.

Deputy Managing Director Paresh Sukthankar acknowledged this is the slowest profit growth ever for over two decade-old bank but defended it, saying this is because of the external environment, and declined to give any guidance on how it sees the next few quarters.

He, however, said the private lender will continue to outgrow the system, and gave out data on both deposits and advances growth where it has achieved this.

He said the bank lost out on "fairly meaningful" quantum of fees from point of sale terminals and ATM usage during the demonetisation exercise (Nov 9-Dec 30), but said this is for the benefit of larger good in the long-term.

Sukthankar made a plea for a "balance" to be achieved on the merchant discount rates so that those investing in the infrastructure also benefit.

But the market lapped the bank counter as they believe the lender did well in a challenging time.

In a report, brokerage Emkay Research said the numbers are steady given the uncertainty in the market and noted that the bank could maintain stable asset quality as well. The 19 percent NII and the 15 percent net profit growth are in line with their expectations.

The bank's domestic credit growth of over 17 percent was split almost evenly between the retail and wholesale lines and the momentum remains healthy, Sukthankar said.

The currency swap exercise affected demand in the two- wheeler and auto segments, he said.

Sukthankar said the bank has been piling up liquidity since the June quarter with an eye on the FCNR redemptions and had collected over Rs 20,000 crore which earned low returns for the bank.

The DMD also quipped that if he knew about the decision to ban the high value notes which led to a huge surge in deposits, the bank would not have kept so much of funds aside for the redemptions.

The bank's core net interest income grew 17.6 percent to Rs 8,309 crore in Q3, while other income inched up 9.4 percent to Rs 2,872.2 crore. Despite the huge spurt in electronic transactions, the core fees and commission grew only 10 percent to Rs 2,206 crore.

The gross non-performing assets ratio was stable at 1.05 percent, while total provisions moved up to Rs 715.8 crore from 653.9 crore.

Sukthankar said the new NPAs came from across sectors and the special RBI dispensation not to classify loans under Rs 1 crore as NPAs for non-repayment for the stipulated 90 days had a 0.03-0.04 percent benefit on the GNPA ratio.

The bank bought Rs 3,355 crore home loans originated by it from parent HDFC, he said, adding the policy of buying- back 70 percent of the originated loans is still in work. Its total capital adequacy stood at 15.9 percent with the core tier-I at 13.8 percent.

The HDFC Bank counter closed 1.84 percent up at 1,267.75 on the BSE as against a 0.95 percent surge in the benchmark.