HDFC Bank Q4 results: Profit misses estimates, asset quality improves

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HDFC Bank Q4 net profit slightly below expectations: The Net profit grew 22.8% year-on-year to Rs 10,055 crore, slightly below analysts’ expectations. Analysts had earlier anticipated a net profit of about Rs 10,200 crore. Last year, during the same period, the bank reported a net profit of Rs 8,186 crore. Sequentially, the profit decreased by 2.7%. The bank was able to post a higher profit YOY on the back of strong loan growth and a healthy rise in Net Interest Income.

HDFC Bank results: Summary

Net interest income misses estimates: A bank’s primary business is to borrow money and lend the same at a rate higher than the rate at which they borrowed. The income generated from this differential is known as net interest income. This is an extremely important number to truly find out as to how much a bank is earning from its core operations. Net interest income for HDFC Bank grew 10.2% YoY to Rs 18,872.7 crore. However, analysts had estimated a Net Interest Income of Rs 19,600 crore. Sequentially, the NII increased from Rs 18,872 crore.

Net Interest Margin falls: The bank’s Net Interest Margin fell to an all-time low of 4% of total assets. NIM for the December quarter stood at 4.2% and 4.1% in the year-ago quarter.

Other Income: The non-interest income remained flat in Q4FY22 over Q4FY21. The Other Income for the Jan-March quarter was Rs 7,637.1 crore against Rs 7,593.9 crore in the same quarter last year. The fees & commissions grew to Rs 5,630.3 crore, while the foreign exchange & derivatives revenue was up at Rs 892.5 crore. However, it reported a loss on sale/revaluation of investments of Rs 40.3 crore against a Rs 655.1 crore gain in the year-ago period. The miscellaneous income, including recoveries and dividends, rose to Rs 1,154.7 crore from Rs 1,036.2 crore.

Asset quality improves: The bank’s asset quality improved with the gross NPA ratio reducing to 1.17% of total advances as against 1.26% in the last quarter and 1.32% in the year-ago period. Net NPA was at 0.32% of net advances for the quarter ended March 31, a decline of 5 basis points, sequentially. Total provisions were 182% of the gross NPAs as of March 31.

Provisions: The provisions and contingencies for the Jan-Mar quarter reduced to Rs 3,312.4 crore, down 29.4% YoY. However, sequentially, the provisions and contingencies have increased significantly by 10.6% from Rs 2,994 crore. Total provisions for the quarter included Rs 1000 crore worth of contingent provisions. The floating provisions were Rs 1,451 crore and contingent provisions at Rs 9,685 crore as of March 2022.

Deposits and Advances: CASA capital is the cheapest source of capital for banks. The higher the number, the more profit a bank can earn. The CASA (Current and Saving Account) deposit grew by 22% on-year with saving deposits at Rs 5.12 lakh crore and current account deposits at Rs 2.39 lakh crore in Jan-Mar 22 quarter. The CASA deposits constitute 48.2% of the bank's total deposits. 

Total advances grew 20.8% YoY to 13.69 lakh crore. The retail loans grew by 15.2%, commercial and rural banking loans grew by 30.4%, and corporate and other wholesale loans grew by 17.4%. Overseas advances constituted 3.1% of total advances.

Capital Adequacy Ratio: The capital adequacy ratio (CAR) is a measurement of a bank's available capital expressed as a percentage of a bank's risk-weighted credit exposures. The Bank's CAR as per Base III guidelines was at 18.9% in Q4FY22 (18.8% in the year-ago period) as against a regulatory requirement of 11.7%. 

HDFC Bank Q4 earnings: subsidiaries Updates

  • HDFC Securities Limited (HSL): It is the leading retail broking firm in India. HDFC Bank holds a 96% stake in HSL. HSL's total income grew 16% to Rs 509.7 crore YoY. Profit After Tax grew 58% YoY to Rs 235.6 crore.
  • HDB Financial Services Limited: It is a non-deposit-taking non-banking finance company offering a wide range of loans and asset finance products. For the quarter ended December, Bank holds a 95% stake in the company. The loan increased to Rs 61,326 crore in the March quarter. The net revenue was up by 7.9% YoY to Rs 2,141.4 crore and profit after tax was Rs 304.1 crore.

HDFC Bank results: Review

While HDFC Bank’s net profit increased as compared to the last year, it has fallen on a QoQ basis. The bottomline as well as Net Interest Margin has missed estimates in the quarter. The bank also saw its lowest-ever operating profit growth and its net interest margin (NIM) has fallen to an all-time low. Weak pricing power has hurt the bank during the challenging quarter. 

However, the bank’s asset quality has seen an improvement. The bank has seen a stable growth in Deposits and Advances. The Capital Adequacy Ratio (CAR) was at 18.9% as of March 31, 2022, much above a regulatory requirement of 11.07%. Shares of HDFC Bank on Friday closed 2% down at Rs 1,464 on BSE.

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