Profit in the September quarter was helped by a healthy jump in core income but there were issues on asset quality. The bank chose not to amortise net depreciation on available-for-sale (AFS) and held-to-maturity (HTM) bonds over three quarters and took a one-time hit, which dragged profit down by Rs 76.61 crore, Executive Director Paresh Sukthankar said.
"We have not had any fixation of a particular number. The actual number rolls out," he said. The Reserve Bank of India had given banks the one-time flexibility after its unconventional liquidity tightening measures of July jacked up bond yields.
The RBI had also allowed banks to transfer securities from the AFS/held-for-trade category to HTM, and accordingly, HDFC Bank transfered Rs 1,932 crore of government bonds from AFS to HTM, thereby protecting its profit by Rs 25.51 crore, the bank said in a note.
During the quarter, the bank continued to face issues on asset quality from the construction equipment and commercial vehicles front, and also a marginal squeeze in the net interest margin.
The bank's core net interest income was up 15.3 percent to Rs 4,476.5 crore, while non-interest income rose 25.3 percent to Rs 1,844 crore. It took a mark-to-market loss of Rs 173.3 crore, which is reflected in non-interest income.
Its gross non-performing assets ratio slipped by 0.20 percent to 1.1 percent on the back of the stress in twin segments on the retail front, Sukthankar said, adding that its restructured assets stood stable at 0.2 percent of the book.
Asked if the worst is over on asset quality troubles, Sukthankar said the ongoing stress is the result of overall economic troubles and it will be "naive" to think that it will pick up unless the economy looks up.
Sukthankar added that there might also be an increase in the number, but declined to give a guidance.
HDFC Bank shares fell 2.37 percent to close at Rs 651.40 on the BSE. The benchmark Sensex declined 0.29 percent. Amid the uptick in bad assets, the bank's provisions were almost flat at Rs 385.9 crore. Sukthankar attributed this to counter-cyclical provisions made a year ago.
Although there was greater demand for credit due to hardening of rates in the money markets, the bank took a "tactical call" and its credit expanded 16 percent, lower than the industry average.
That was due to slower economic growth, inability to meet margin expectations on the wholesale lending front and its decision not to purchase home loans from parent HDFC Ltd, Sukthankar said.
The bank witnessed a deposit growth of 14 percent and deployed its deposits for the advances growth, Sukthankar said, adding that the credit-deposit ratio was 79 percent.
The proportion of the low cost current and savings deposits grew marginally to 45 percent as of September 30, while the bank's NIM contracted slightly to 4.3 percent as a result of the surge in interest rates in the money markets following the RBI's liquidity tightening measures.
He said the yield on assets on the retail front, which constitutes 53 percent of its book, was lower for the past two months due to competition.
State-run banks launch a slew of aggressive products to boost retail loan demand during the festival season. Stating that festive demand is "muted," Sukthankar said it may also respond to competition in some products.
HDFC Bank expects a pullback from the corporate side for credit in the next two quarters as it been a bit restrained in lending to the segment till now, Sukthankar
said, adding that with changes in the policy environment, some project loan proposals may also come up.
The lender does not face any liquidity issues, he said, stating that it is carrying up to 6 percent in excess statutory liquidity ratio bond portfolios. It has garnered USD 300 million in FCNR(B) deposits after the RBI announced the special concessional swap window and will be scouting for more, he said.
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