Win win Healthy loan portfolio, bad loans under check

HDFC Bank’s performance during the latest March quarter has not deviated much from the past, except for the increase in provisioning.

In fact, loan growth that had slowed over the past two quarters, picked up well in the March quarter. Importantly though, what has calmed investors’ nerves is the management stating that the RBI found no divergence in HDFC Bank’s asset classification and provisioning from the norms.

This relief is notable, in light of YES Bank falling victim to the RBI’s directive and reporting a sharp rise in bad loans in the latest March quarter.

The increase in provisioning in the case of HDFC Bank is mainly on account of loans that were not declared as NPAs in the December quarter, due to RBI relaxing the NPA recognition norms post-demonetisation.

Classifying these as bad loans in the March quarter has led to the substantial increase in provisioning. Nonetheless, an 18 per cent growth in profit on the back of 19 per cent growth in loans and stable margins, is noteworthy at a time when the sector is still grappling with 5 per cent loan growth levels.

On healthy wicket

The pick-up in loans during the March quarter, after a small blip in the previous two quarters, is a key positive. After clocking 22-27 per cent year-on-year growth in loans for many quarters, HDFC Bank had delivered marginally lower loan growth in the September (18 per cent y-o-y) and December (13 per cent y-o-y) quarters. This was mainly due to lower traction in corporate loans.

The 19 per cent overall growth in the March quarter has been driven by healthy expansion in both retail and corporate loans that grew 26.6 per cent and 20.7 per cent, respectively. In the December quarter, two factors impacted HDFC Bank’s corporate loan growth. One, the unwinding of the leveraged product the bank offered under the FCNR deposit scheme to the tune of $2 billion. And, two, repayment of some of the working capital loans by SMEs post-demonetisation.

Normalisation of some of these events has helped corporate loans pick up in the March quarter.

HDFC Bank’s retail loans continue to report healthy broad-based growth.

Stress under check

The bank’s loan delinquency continues to be low. Gross non-performing assets (GNPAs) stood at 1.05 per cent as of March 2017, stable over the previous quarter and only a tad higher than 0.94 per cent as on March 2016.

A few points though are worth noting.

While as a proportion of overall loans, the bank has been able to maintain stable asset quality, in absolute terms, there has been a steady rise in bad loans over the past couple of quarters.

Bad loans have been growing at 20-30 per cent year-on-year over the past four quarters, partly indicative of the overall stress within the system and also a result of the steady growth in loans. Provisioning though has not seen a significant rise up until now.

There has been a sequential rise of about ₹550 crore (76 per cent) in provisioning during the March quarter. Following demonetisation, the RBI had relaxed NPA recognition norms by 60 days (later by an additional 30 days) for loans of ₹1 crore or less. Of the total increase in provisioning, about ₹100 crore has been due to classifying such loans as NPA in the March quarter.