HDFC Bank Q4 disappoints, posts net profit of 2,327 crore

MUMBAI: HDFC Bank, the most valuable lender, posted an earnings growth that fell below expectations for the second quarter in a row, after meeting estimates for more than a decade, as a slow economy held back projects and tax rate jumped.

However, the bank said the worst is over and its efficiency parameters such as costs are intact, and that business could look up once the projects - stuck because of administrative blocks - are cleared.

The bank said March quarter net profit rose 23% driven by treasury income and lending to corporates, which grew faster than its traditional stronghold of retail lending.

Net profit for the quarter was 2,327 crore for the fourth quarter ended March compared to 1,890 crore in the corresponding period last year. This is compared with the analysts' forecast of 2,382 crore, or gains of 26% according to an ET Now poll.

The bank has also recommended a dividend of 6.85 per share for the year ended March 31, 2014.

"There is nothing magical about the 30% growth in profitability," said Paresh Sukthankar, deputy managing director at the bank. "All the key parameters - revenues, costs and provisions have been under check.''

HDFC Bank led by chief executive Aditya Puri has been a trailblazer in the Indian banking industry with the 'magical' 30% earnings growth every quarter for almost a decade, before the economic slowdown halted it in the December quarter. But the bank is among the better placed since it does not have exposure to infrastructure projects unlike state-run banks which lent heavily under government pressure to build roads, ports and power plants. Most such projects are stuck due to disputes.

"HDFC bank's numbers came largely in line with our expectations. Core performance was aided by 20 bps QoQ improvement in NIM along with strong loan growth. Retail book saw moderate growth while corporate book grew at faster pace. Asset quality did not spring any negative surprise and remained stable at 98 bps. We have the positive bias on the HDFC Bank, which has only 50 bps of loan book under stress portfolio (net NPA + restructured book)," said Saday Sinha, banking analyst, Kotak Securities.

Tax rate jumping by more than four percentage point is the biggest factor that shaved off earnings growth, said Sukthankar. Tax rate in the March quarter was 33.4%, compared with 29% a year earlier. Net interest income, the difference between what the bank paid for funds and what it earned from lending, climbed 15.3% to 4,953 crore, from 4,295 crore a year earlier.

The profit before tax was 3,493.2 crore, an increase of 31.2% over 2,662.2 crore for the quarter ended March 31, 2013. The bank provided 1,166.7 crore for taxation effective tax rate of 33.4% against 29.0% for the corresponding quarter ended March 31, 2013. The bank's income from wholesale banking business increased by 16.23% to 1,500.37 crore.

"Lending to corporates outpaced the growth in lending to retail," said Sukthankar. "We are seeing demand for working capital loans both short term and medium term funding requirements. There are no green field projects coming up, however, brown field expansion is happening.''