India's largest private lender HDFC Bank has reported a 19.6 percent year-on-year growth in standalone profit for the quarter ended June 2020, led by lower tax cost and NII. However, elevated provisions, and lower other income due to slowdown in economic activity limited profit growth.
Profit during the quarter increased sharply to Rs 6,658.62 crore, compared to Rs 5,568.16 crore in the same period last year.
Net interest income in Q1 FY21 climbed 17.8 percent year-on-year to Rs 15,665.42 crore supported by healthy loan growth of 21 percent in the quarter and deposits growth of 24.6 percent, said the bank in its BSE filing.
Net interest margin for the quarter stood at 4.3 percent.
The bank said CASA deposits grew by 26 percent and time deposits increased by 23.7 percent YoY, resulting in CASA deposits comprising 40.1 percent of total deposits as of June 2020. "The bank's continued focus on deposits helped in the maintenance of a healthy liquidity coverage ratio at 140 percent, well above the regulatory requirement."
Provisions and contingencies for the quarter stood at Rs 3,891.52 crore, increasing 48.9 percent compared to the corresponding period last fiscal and 2.8 percent on a sequential basis.
"The bank holds provisions as on June 30, 2020, against the potential impact of COVID-19 based on the information available at this point in time. The provisions held by the Bank are in excess of the RBI prescribed norms," HDFC Bank said.
It held floating provisions of Rs 1,451 crore and contingent provisions of Rs 4,002 crore as on June 2020, while total provisions (comprising specific, floating, contingent and general provisions) were 149 percent of the gross non-performing loans, the bank added.
Asset quality weakened on expected lines during the quarter as gross non-performing assets (NPA) climbed sequentially to 1.36 percent (from 1.26 percent), and excluding agricultural segment, gross NPAs increased to 1.2 percent from 1.1 percent QoQ. However, net NPAs dropped to 0.33 percent during the June quarter, from 0.36 percent during the March quarter.
Pro-provision operating profit (PPoP) jumped 15.1 percent to Rs 12,829.27 crore compared to the year-ago quarter as operating expenses declined down 2.9 percent YoY primarily due to lower loan origination and sales volumes.
"Earnings and PPoP were 15 percent and 5 percent over our estimates. Higher-than-expected operational profit arose as operating expenses were contained which reflects high modularity of the business (a positive surprise)," said Rajiv Mehta, Lead Analyst – Institutional Equities at YES Securities.
"Accretion in core capital ratio (CET-1 at 16.7 percent) was on the back of strong profitability and lower risk intensity of growth. Such resilient performance is highly comforting. However, we would be closely monitoring moratorium data, management's recent assessment of COVID impact and management transition," he added.
The bank said its cost-to-income ratio for the quarter stood at 35 percent as against 39 percent in the corresponding quarter ended June 30, 2019.
However, non-interest income fell considerably to Rs 4,075.31 crore in the quarter ended June 2020, down 18 percent YoY largely due to lower fees & commissions (dipped 37 percent).
"The continued slowdown in economic activity has led to a decrease in retail loan origination, sale of third party products, use of credit and debit cards by customers, efficiency in collection efforts and waivers of certain fees. As a result, fees/other income were lower by approximately Rs 2,000 crore," said HDFC Bank.
