Agricultural seasonality hurt asset quality in Q1FY25, says HDFC Bank

So far this year, HDFC Bank's stock has declined over 5 percent, underperforming the benchmark Nifty 50 index, which rose 12 percent during the same period

HDFC Bank's asset quality worsened in the April-June quarter (Q1FY25) due to seasonal factors that affected the agricultural sector, the bank's management said in their earnings conference call. The bank's gross non-performing asset (NPA) ratio increased by 9 basis points (bps) sequentially to 1.3 percent, while net NPA rose by 6 bps to 0.4 percent in Q1FY25.

"If you look at some of the key metrics, whether it is net interest margins (NIMs), CASA ratios, cost to income, or GNPA, from that starting point to 30 June 2024, it has been stable and range-bound. The GNPA has been in the range of 1.2 percent to 1.4 percent, and if you exclude the seasonality of agriculture, it has been on a declining trend," HDFC Bank said.

The management emphasised that excluding NPAs in the agricultural segment, the gross NPA would be 1.16 percent compared to 1.33 percent in Q1FY25.

Year-on-year comparisons are not directly applicable due to the recent merger with Housing Development Finance Corporation on July 1, 2023.

ALSO READ: HDFC Bank net gains Rs 482.87 crore after transition to revised norms on bank investment portfolio

Additionally, India's largest lender reported a 2 percent quarter-on-quarter drop in Q1 profit to Rs 16,174 crore from Rs 16,510 crore, attributed to lower income growth and higher tax expenses. However, net interest income rose 2 percent quarter-on-quarter to Rs 29,837 crore.

During the quarter, the lender's NIM increased slightly to 3.47 percent in Q1FY25 compared to 3.44 percent in Q4FY24.

The bank’s board has given in-principle approval to initiate the process for listing HDB Financial Services Limited (HDBFS) through a potential initial public offering (IPO). This listing is required under RBI norms for upper layer NBFCs, and the bank will seek necessary regulatory approvals.

So far this year, HDFC Bank's stock has declined over 5 percent, underperforming the benchmark Nifty 50 index, which rose 12 percent during the same period.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.