Here is what to expect from HDFC Bank's Q3 earnings

Moneycontrol Bureau

India's second largest private sector lender HDFC Bank is likely to report a robust growth of 29% year-on-year in its third quarter (October-December) net profit in 2012-13. Net interest income or the difference between interest earned and paid out, would grow 25% y-o-y on the back of strong credit expansion, suggested an analyst poll estimate by CNBC TV18.

"HDFC Bank has so far given consistent performance and it is unlikely to spring any ugly surprise," Dinesh Shukla, a banking analyst, Sharekhan brokerage told moneycontrol.com.

"Currently, the lender does not face any major risk. Asset quality is reasonably good and would be maintained in third quarter. Loans are expected to expand at a faster pace than the industry average. Consequently, net interest margin may also rise by 5-10 basis point points," he said.

Loans would grow at 20% y-o-y wherein retail book would be a key driver. The bank's loan book was at Rs 2.32 lakh crore as on September 30, 2012. Due to its focus on retail base, the growth in fee income too is likely to continue. The lender is engaged in cross selling of financial products of its group entities like HDFC mutual funds, HDFC Life insurance and so on. In Q2, fee income grew more than 22% y-o-y to Rs 1,209 crore.

The bank is significantly into retail business which forms more than 50% of the loan book. For companies, it mainly extends credit for working capital needs of shorter duration. Hence, HDFC Bank is not into long term corporate lending. It had started project financing a year back but it currently forms around 5% of the book.

Analysts also expect a reduction in provisions against bad loan, which will add to the net profit. In July-September quarter, it dropped 20% to Rs 293 crore, supported by an improvement in asset quality. Provisions consisted of three components: specific, general and floating.

saikat.das@network18online.com