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Saturday , January 19, 2013
Retail Competition, Asset Quality a Worry
Publication: The Economic Times , Agency:Bureau
Edition:Pune/Mumbai , Page No: 12, Location: Bottom­Center , Size(sq.cms): 200
Retail Competition, Asset Quality a Worry
MECHA SARAF
ETINTELLICENCE GROUP
When it comes to HDFC Bank, there
are hardly any surprises during the
earnings season as analysts and in­
vestors have realised over the past
few years.
For the 35th consecutive quarter,
HDFC Bank, India's third­largest pri­
vate lender, posted a 30% year­on­
year growth in its net profit, driven by
a higher fee income, stable margins
and robust asset quality.
The bank's loan book expanded 24%
year­on­year, supported by retail and
corporate loans. However, the major
contributor was retail loans, growing
at 28 %. Auto loans and credit to
mediu m a n d s m a l l e n t e r p r i s e s
(MSME), which constitute 40 % of
the total portfolio, were the major
drivers of the retail loan book.
T h e u n s e c u r e d p o r t f o l i o­credit
cards and personal loans business al­
so grew substantially. Its current and
savings account or CASA ratio con­
tinued to be stable at 45.4%, helping
the bank to maintain a stable cost of
funds and margins. Net interest mar­
gin, which is the difference be
CALCULUS
HDFC BANK
tween yield on
a d v a n c e s a n d
cost of deposits, was lower marginally
from the last quarter. Still at 4.1%, it
was within the 3.9­4.2% range as
guided by the bank and continues to
be one of the highest in the industry.
Net interest income, or the difference
between interest earned and interest
s p e n t , w a s s l i g h t l y l o we r t h a n
expectations as loan growth was
slightly lower than usual. However,
higher fee income and sta­
ble provisioning helped the bank to
compensate this slowdown and
report a consistent bottom line
growth. However, for the quarter to
December, the bank showed some
stress on asset quality Bad loans
increased 14% sequen­
tially on an absolute basis. More than
80% of this Rs.298 crore rise in bad
loans can be attributed to retail
assets, with 50% of it coming from the
commercial vehicles and construction
equipment segment. However, the bad
loans­to­total loans (gross) ratio was
just 1% and with a provisioning
coverage ratio of 80% this is not a
very serious concern. Almost all
b a n k s a r e t a r g e t i n g t h e retail
s e g m e n t t o s u p p o r t l o a n growth.
Hence, HDFC Bank will also have to
reckon with increased competition
u n l e s s i n v e s t m e n t a c t i v i t y picks
up. Asset quality might also be under
pressure, especially, in the retail
segment. At Rs.662.70, HDFC Bank is
trading at a price to book value of 4.5
FY13. At this valuation, all the posi­
tives have already been factored in
and there appears to be limited
upside.
megha.saraf@timesgroup.com