As it reported results as a single entity for the first time following its merger with parent Housing Development Finance Corp (HDFC), India’s HDFC Bank (HDBK.NS) reported a significant sequential decline in its lending margin and a rise in bad loans for the second quarter.
To cope with the increased demand for loans, HDFC Bank merged with HDFC on July 1 in a $40 billion consensus. The largest private lender in India reported a drop in net interest margin, which dropped to 3.4% overall and 3.6% on interest-earning assets. NIM, or net interest margin, came in at 4.1% in the June quarter.
According to the bank’s chief financial officer Srinivasan Vaidyanathan, more liquidity held prior to the merger resulted in a hit of 30-35 basis points. Organically, the combination of two firms would have translated into margins of 3.6%–3.7%.
Vaidyanathan did not state what the margins will be in the following few quarters. For the quarter ending in September, net profit, excluding its subsidiaries, was 159.76 trillion rupees ($1.92 billion). The figures are not comparable to those from the previous year when the lender and parent HDFC were independent businesses.
The bank’s gross non-performing assets (NPA) ratio increased to 1.34% as a result of loans from the HDFC loan book aggregating to 45–50 billion rupees being restructured. According to existing regulations, these restructured loans were classified as non-performing, according to Vaidyanathan. Prior to the merger, the bank’s gross NPA ratio for the first quarter of its fiscal year was 1.17%.
According to the bank, the gross NPA ratio was less than the pro forma estimate of 1.41% for the combined business at the end of the June quarter. The bank has made sufficient provisions for stressed loans, and net bad loans increased by 5 basis points to 0.35 percent after provisions.
According to the lender, gross loans reached 23.55 trillion rupees, an increase of 4.9% from the prior quarter on a like-to-like basis. Post the merger, retail loans now make up 55% of the loan book.
However, Vaidyanathan noted that the country’s credit environment is “benign” and that the bank will continue to grow at a pace higher than the broader industry. At the end of September, deposits were approximately 21.73 trillion rupees, a 5.3% increase from the end of June on a comparable basis.
- Published By Team Genuine Reporter