HDFC Bank Q3 Review: Profit Meets Expectations, but Margin Growth is Slow

HDFC Bank, a leading private sector lender, reported a standalone net profit of Rs 10,342 crore for the December 2021 quarter on January 15, up 18 percent year on year thanks to lower bad loan charges. The profit in the previous fiscal quarter was Rs 8,758.29 crore.

In Q3FY22, net interest income increased by 13% to Rs 18,444 crore, with a net interest margin of 4.1 percent and solid credit growth of 16.4 percent. In Q3, profit and net interest income increased by 17 percent and 4.3 percent, respectively, on a sequential basis.

HDFC Bank said on January 4 that loans for the quarter were Rs 12.6 lakh crore, up 16.4% from the previous quarter and 5.1 percent sequentially. “Retail loan growth was 13.5 percent year over year, while corporate loan book growth was 7.5 percent year over year.”

The bank further said that deposits increased 13.8 percent YoY to Rs 14.46 lakh crore in the December 2021 quarter, with CASA deposits increasing 24.6 percent YoY to Rs 6.81 lakh crore. “As of December 31, 2021, the CASA ratio was about 47 percent, compared to 43 percent in December 2020 and 46.8 percent in September 2021.”

Provisions and contingencies for the quarter were Rs 2,994 crore, down 12.3% year over year and 23.7 percent from the previous quarter, which included Rs 1,820.6 crore in particular loan loss provisions and Rs 1,173.4 crore in general and miscellaneous provisions. “Contingent provisions of roughly Rs 900 crore were included in total provisions for the December quarter,” HDFC Bank stated.

According to the bank, the overall credit cost ratio was 0.94 percent for the quarter. This compares to 1.3 percent in the third quarter of 2021 and 1.25 percent in the fourth quarter of 2020. At the end of December 2021, asset quality improved even further, with gross non-performing assets as a proportion of gross advances falling 9 basis points sequentially to 1.26 percent and net non-performing assets falling 3 basis points QoQ to 0.37 percent.

For the December 2021 quarter, pre-provision operating profit climbed by 10.5 percent to Rs 16,776 crore, while other income increased by 9.94 percent to Rs 8,183.55 crore. Forex and derivatives revenue, as well as recoveries and dividends, drove rise in other income, while fees and commissions, which account for 62 percent of non-interest income, experienced modest growth year over year.

Fees and commissions income climbed by 2% in the quarter to Rs 5,075.1 crore, foreign currency and derivatives revenue jumped by 68.8% to Rs 949.5 crore, and miscellaneous income comprise+ecoveries and dividends increased by 39.56 crore to Rs 1,112.5 crore.

On Friday, HDFC Bank’s stock closed at Rs 1,545.25 on the BSE, up 1.11 percent. Since the beginning of the December 2021 quarter, the stock has dropped more than 3%, lagging the benchmark indexes Bank Nifty and Nifty 50, which have gained 2.5 percent and 3.6 percent, respectively, in the same time period.

In the third quarter, private lender HDFC Bank issued a record number of credit cards.

HDFC Bank issued roughly 950,000 credit cards in the previous quarter, the greatest number of credit cards it has ever issued in a single quarter. The lender has issued 1.37 million credit cards after the Reserve Bank of India lifted the prohibition on issuing new credit cards in August 2021.

Since the RBI permitted HDFC Bank to resume issuing credit cards, the lender has pledged to re-enter the market with a bang and reclaim lost market share. Following the removal of the embargo, it set a goal of issuing around 300,000 cards every month. Beginning in February, monthly card issuances might reach 500,000.

In the meanwhile, credit card spending increased by 24% year over year (YoY) in the current quarter, while debit card spending increased by 14%. “The rise in expenditure reflects both more consumer interaction and a better economic climate from a consumption standpoint,” experts said.

Despite the fact that credit card spending has been strong, credit limit use has not yet surpassed pre-pandemic levels. The use of credit lines has increased to 0.8 times its pre-pandemic level.

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