Farm loan waiver hits HDFC’s performance

Net profit up 20 per cent to J3,894 crore, but NPA ratio shoots up due to high exposure to the agriculture sector
Farm loan waiver hits HDFC’s performance

MUMBAI: The peril called higher provisioning and bad loans extended to HDFC Bank, which until now remained largely unscathed.On Monday, the private-sector lender reported an enviable 20.2 per cent rise in net profit at Rs 3,894 crore for the quarter ended June 2017, but disappointed investors posting its highest non-performing asset (NPA) ratio in years, courtesy farm loan waivers.

Total provisions nearly doubled to Rs 1,558 crore from Rs 866 crore a year ago, including Rs 121 crore set aside for its exposure to potentially stressful sectors even if it is standard.
HDFC’s total exposure to agri loans stood at Rs 28,000 crore, in line with the 18 per cent mandatory priority-sector lending requirement, but the recent farm loan waivers and demonetisation that delayed repayments meant that gross NPA ratio rose to 1.24 per cent.
“Almost 60 per cent of fresh slippages have come from the agri portfolio. A fair portion does reflect the changed customer behaviour in anticipation of the loan waivers announced. But, something like this in a year when otherwise the harvest has been good is out of our control,” said Paresh Sukthankar, deputy managing director, HDFC Bank.

Considering the vulnerable telecom sector, the board decided to provide up to one per cent provisioning against the required 0.40 per cent. It made extra provisions to other sectors like iron and steel sector.
The silver lining, however, is the net interest margin that grew to 4.4 per cent led by a 20.4 per cent rise in net interest income at Rs 9,370.7 crore, along with a 20 per cent growth in advances. Other income grew 25.3 per cent to Rs 3,516.7 crore helped largely by a 30 per cent growth in fee and commissions.
Operating expenses were up 12.6 per cent, leading to further reduction in the cost-to-income ratio, which improved to 42.7 per cent.

After multiple quarters of its declining staff strength, total number of employees remained flat at over 84,000 in the reporting period and Sukthankar said the bank would continue with its efficiency efforts. Total deposits grew 17 per cent.
According to Sukthankar, fixed deposits were up due to corresponding loan demand, but working capital and refinance needs remained elusive. The bank’s overall capital adequacy was 15.6 per cent with core tier-I capital being at 13.6 per cent.
Meanwhile, amid consolidation, he said the bank does not “chase” inorganic growth; instead, it will pursue organic growth as core strategy.

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