MUMBAI: Despite a sharp deterioration in the asset quality in its agri book, HDFC Bank has reported street-beating numbers, earning Rs 16,736 crore in net income for the December quarter, up 2.2% on-year. The numbers led to a 1.42% rally in its stock which has been struggling ever since the merger with its parent in July 2023.
The management of the country's biggest private lender told reporters that the bank's gross non-performing assets ratio worsened largely due to an increase in agricultural loans going bad. Accordingly slippages, or loans classified as NPAs for the first time, rose to Rs 8,800 crore from Rs 7,800 crore, they said, adding that bad loan provisions and other contingencies rose 17% to Rs 3,154 crore. But loan loss provisions for the quarter declined to Rs 3,154 crore from Rs 4,217 crore, reflecting a 25% reduction annualized.
Gross non-performing assets increased to Rs 36,019 crore, up 16% from Rs 31,012 crore a year ago. Consequently, the gross bad loan ratio rose 18 bps to 1.42 from 1.26 a year ago. Similarly, net non-performing assets jumped 51% to Rs 11,588 crore, with the net bad loan ratio increasing by 15 bps to 0.46 from 0.31.
The bank's net interest income, which is the difference between interest earned and paid, a key metric of the bank's earnings, grew 8 percent to Rs 30,690 crore during the quarter, in line with expectations. But net interest margin for the quarter was flat at 3.4% compared to 3.5% in the September quarter.
The core net interest margin sequentially shrank to 3.43% from 3.46% on total assets, and 3.62% to 3.65% on interest-earning assets.
Total deposits stood at Rs 25.6 trillion, registering a 15.8% growth, while total advances rose 3% to Rs 25.2 trillion, of which retail loans grew 10%, and commercial and rural banking loans grew 11.6% but corporate and other wholesale loans declined 10.4%.
“Despite muted credit expansion, steady deposit growth aligns well with the bank's long-term goals of balancing both credit growth in line with deposit accretion. Although there was a slight decline in asset quality, the bank has consistently maintained strong asset quality through disciplined underwriting and risk-calibrated lending," said Abhishek Pandya, a research analyst at StoxBox.
On deposit growth, the bank said its average deposits grew nearly 16% to Rs 24.53 trillion while average Casa (current account and savings account) deposits grew 6% to Rs 81,7600 crore.
HDFC Bank's merger had added a large pool of loans to its portfolio but a much smaller amount of deposits, putting it under pressure to increase the pace of raising deposits or slow loan growth. Over the past few months, it has offered retail loans for sale to reduce its loan-to-deposit ratio, a key metric for banks to assess their liquidity position by gauging whether they have enough deposits to fund loan growth. The bank has also been shrinking its retail loan portfolio as it seeks to improve its credit-deposit ratio that shot up after its merger with its parent.