Rise in core income push profit to Rs1,982 cr  Bank choses not to repay net depreciation on available-for-sale (AFS) and held-to-maturity bonds over three quarters

Mumbai : The country’s second-largest private sector lender HDFC Bank on Tuesday posted a 27.1% increase in profit to Rs.1,982 cr, the first time in a decade that its earnings growth has fallen below 30%.

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 cr, 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 transferred Rs.1,932 cr of government bonds from AFS to HTM, thereby protecting its profit by Rs.25.51 cr, 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% to Rs.4,476.5 cr, while non-interest income rose 25.3% to Rs.1,844 cr. It took a mark-to-market loss of Rs.173.3 cr, which is reflected in non-interest income.
Its gross non-performing assets ratio slipped by 0.20% to 1.1% 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% 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% to close at Rs.651.40 on the BSE. The benchmark Sensex declined 0.29%.
Amid the uptick in bad assets, the bank’s provisions were almost flat at Rs.385.9 cr. 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% 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% and deployed its deposits for the advances growth, Sukthankar said, adding that the credit-deposit ratio was 79%. The proportion of the low cost current and savings deposits grew marginally to 45% as of September 30, while the bank’s NIM contracted slightly to 4.3% as a result of the surge in interest rates in the money markets following the RBI’s liquidity tightening measures.

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