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HDFC Bank Q4 takeaways: Asset quality steady, arm HDB’s health improves

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HDFC Bank Q4 takeaways: Asset quality steady, arm HDB’s health improves

MUMBAI: In a quarter where earnings of banks are expected to be hit by the recognition of Covid-related stress following the Supreme Court’s order, HDFC Bank today reported steady earnings for the quarter ended March.

While the bank’s net profit growth of 18 per cent on-year was below analysts’ estimates, its asset quality performance and net interest income growth were ahead of Street’s expectations.

Here are the major takeaways from India’s largest private lender’s March quarter earnings:

High provisions and taxes eat into profits
The underperformance of HDFC Bank’s bottomline in the quarter could be blamed on the rise in provisions and tax expenses. HDFC Bank’s provisions jumped 24 per cent on a year-on-year basis to Rs 4,693.7 crore, while its tax expenses rose 18 per cent from the year-ago quarter.

Asset quality positively surprises
HDFC Bank reported a gross non-performing assets ratio of 1.32 per cent for the quarter as against 1.38 per cent in the previous quarter. The improvement in asset quality comes despite the Supreme Court lifting the stay on reporting of bad loans prior to August 31.

Operating profit remains strong

The bank continued to deliver strong operating performance in the March quarter as pre-provision operating profit surged 20 per cent on-year against expectations of around 13-14 per cent growth.

No dividend due to Covid second wave
HDFC Bank decided against paying a final dividend to shareholders as a prudent policy choice in wake of the renewed uncertainties caused by the ongoing second Covid-19 wave in the country. “The extent to which the Covid-19 pandemic, including the current ‘second wave’ that has significantly increased the number of cases in India, will continue to impact the Group’s results will depend on the ongoing as well as future developments, which are highly uncertain,” the bank said.

HDB Financial’s performance improves
Investors will be relieved by the improvement in asset quality of HDFC Bank’s housing finance arm HDB Financial Services. HDB Financial’s gross NPA ratio improved to 3.9 per cent in the March quarter from the proforma 5.9 per cent in the previous quarter. The pandemic had taken a severe toll on HDB Financial’s asset quality.

Credit cost rises sequentially
HDFC Bank’s total credit cost jumped to 1.64 per cent from 1.25 per cent in the previous quarter, likely reflecting the sharp rise in provisions due to the recognition of impaired loans prior to August 31, which was halted by the Supreme Court earlier.

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