HDFC Bank’s net interest margins remained stable during the June quarter, at only 4.3%, underscoring the challenging times ahead for banking industry

HDFC Bank's net profit for Q1 ended 30 June 2012 was Rs1,417.40 crore, 30.6% over the corresponding period last year. Its net interest margin for Q1 2012-13 stood at 4.3%, which was only 10 basis percentage points higher than Q1 2011-12. Net interest income grew by 22.3%, to Rs3,484.10 crore, which is much faster than the growth rate recorded for same period last year. This was mainly driven by loan growth of 21.5%. The bank's capital adequacy ratio for the reporting quarter declined year-on-year (y-o-y) from 16.9% to 15.5%, highlighting a challenging economic climate. However, it has managed to steady its ship.

The current quarter's growth in the bank's total income is in line with its three-quarter historical y-o-y growth trends of 34%. Its net revenues, which grew by 26.3%, y-o-y, stood at Rs3,968 crore. However, its net interest margins remained stable, at only 4.3%, underscoring the challenging times ahead for banking industry. Its operating profit grew by 27%, which is higher than its three-quarter y-o-y operating profit growth rates of 19%. This is despite the current account-savings account (CASA) ratio declining by 310 basis percentage points, y-o-y, to 46% for the current quarter. The bank's return on equity stood at 18%, which is not too bad, while its valuation in terms of market-capitalisation to operating profits stood at 13.24 times.
One of the most important metrics, apart from net interest margins, is the gross non-performing assets (GNPAs). The bank said that the asset quality remained healthy and stable with GNPA at 1% of the gross advances. This has come down when compared to 1.04% when compared to the same quarter last year. Total restructured loans (including applications received and under process for restructuring) were at 0.3% of gross advances as on 30 June 2012.

The loan mix of the company was 52:48 towards retail and wholesale segments, respectively. One can see that the retail segment has fallen from 54% recorded for Q1 of 2011-12 fiscal. The high interest rate regime has forced many a consumers to stay away from retail loans. Despite this, half of the bank's revenues came from the retail segment, while wholesale banking chipped little more than a quarter. The bank's revenues from the core activities of the bank, namely fees & commissions, grew by 23.9%, y-o-y, to Rs1,143.30 for the quarter ended 30 June 2012. The bank's overall balance sheet size grew by 25.9% to Rs 3,60,001 crore at the end of June.

As on 30 June 2012, the total number of branches and ATM network stood at 2,564 and 9,709, respectively. The stock closed at Rs585.95 on Bombay Stock Exchange, up 1.05% on the back of the results.