HDFC Bank Q3 profit jumps 33%, but asset quality weakens, provisions spike

Private sector lender HDFC Bank on January 18 has registered a whopping 33 percent year-on-year growth in third quarter profit, driven by other income and operating income, but asset quality weakened along with deterioration in provision coverage ratio. Lower tax cost also boosted profitability.

Profit during the quarter increased to Rs 7,416.5 crore, from Rs 5,585.85 crore in same period last year.

Net interest income, the difference between interest earned and interest expended, grew by 12.7 percent to Rs 14,172.9 crore compared to year-ago with loan growth of 19.9 percent and deposits growth of 25.2 percent YoY.

CASA deposits in Q3 grew by 21.5 percent and time deposits increased by 27.7 percent YoY, the bank said, adding the continued focus on deposits helped in the maintenance of a healthy liquidity coverage ratio at 140 percent, well above the regulatory requirement.

Net interest margin for the quarter remained stable at 4.2 percent, it said.

Asset quality was weak with gross non-performing assets (NPA) as a percentage of gross advances rising 4bps QoQ to 1.42 percent and net NPA climbing 6bps QoQ to 0.48 percent in quarter ended December 2019.

But excluding the portion of agricultural segment, gross NPA remained flat at 1.2 percent QoQ.

Provisions and contingencies jumped 37.6 percent YoY (12.7 percent QoQ) to Rs 3,043.56 crore during October-December quarter.

"Numbers were slightly better and yes the asset quality and provisioning coverage ratio (PCR) weakened but the NPA is fine considering the seasonality factor (agricultural NPA)," Ravikant Bhat of IndiaNivesh told CNBC-TV18.

Siddharth Purohit of SMC Institutional Equities also agreed with Bhat, saying this quarter is always seasonally weak quarter in terms of asset quality, but the bank generally recovered the same in following quarters, so overall it is very good quarter and the market will take it positively. "I am okay with numbers."

Other income (non-interest income) increased significantly to Rs 6,669.28 crore for the quarter, up 35.5 percent YoY as its main component fees and commissions grew by 24.1 percent, said the HDFC Bank in its BSE filing.

Miscellaneous income including recoveries and dividend more than doubled to Rs 940.4 crore (from Rs 402.6 crore YoY) during the quarter as recoveries included one-off item of approximately Rs 200 crore arising from resolution fo a NCLT matter, it added.

Pre-provision operating profit (PPoP) grew by 20.1 percent year-on-year to Rs 12,945.41 crore in Q3FY20. The cost-to-income ratio for the quarter at 37.9 percent improved from 38.4 percent in same period last year.

Meanwhile, Keki Mistry, Chairman and Whole-Time Director, has relinquished his office as director of the bank, the lender said.

The board of directors duly approved the re-appointment of Malay Patel as an Independent Director and Kaizad Bharucha as an Executive Director, subject to the approval of the Reserve Bank of India and the

shareholders.