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HDFC Bank released its earnings report for the first quarter of FY22 with a 16.1% y-o-y increase in standalone net profit to Rs 7,729.64 crore. This is lower than market expectations of Rs 7,900 crores. Changes in customer behavior amid the coronavirus-led pandemic and the slew of ensuing lockdowns affected business activity, according to the bank.

What is worrisome is that the profit growth is at a multi-quarter low. The bank’s net profit stood at Rs 8,186.51 crores in the January to March 2021 quarter against the current Rs 7,729.64 crore. 

Net Interest Income (NII) grew by 8.6% to Rs 17,009 crore on a y-o-y basis, but this is lower than the Rs 18.523.68 crore the bank reported in the previous quarter. Net Interest Margin (NIM) for the bank tumbled to 4.1% – a new low for HDFC Bank since FY17. The lender has maintained NIM in the range of 4.2-4.4% over the last 5 years.

Total income rose 6.7% y-o-y as the private lender’s income for June 2021 came in at Rs 36,771.47 crore against Rs 34,453.28 crore in the year-ago period. However, asset quality weakened with Non-Performing Assets (NPAs) increasing to 1.47% from 1.32% q-o-q and 1.36% y-o-y.

HDFC Bank declared a dividend of Rs 6.50 per equity share.

Hits

  • HDFC’s net revenue jumped 18% y-o-y from Rs 19,740.7 crore to Rs 23,295.5 crore.
  • The bank reported a 13.5% y-o-y increase in its balance sheet size to Rs 17,53,941 crore.
  • HDFC’s Net Income Interest (NII) increased from Rs 15,665.4 crore in the corresponding quarter last year to Rs 17,009.0 crore in this quarter.
  • The bank’s other income grew 54.3% from Rs 4,075.3 crore to Rs 6,288.5 crore over the last year. Other income now accounts for 27% of HDFC bank’s revenue.
  • Capital Adequacy Ratio increased from 18.8% to 19.1% in Q1 FY22.
  • The bank’s total income increased from Rs 34,453 crore to Rs 36,771 crore y-o-y.
  • Pre-provision operating profit grew by 18% from Rs 12,829 crore to Rs 15,137 crore over the last financial year.
  • HDFC’s loan book registered a growth of 14.4% in Q1 FY22 compared to the year-ago quarter.
  • HDFC’s liquidity ratio is at a comfortable 126%.

Misses

  • The company’s total income on a q-o-q basis plummeted from Rs 38,017 crore to Rs 34,453 crore in this quarter.
  • HDFC’s net profit on a standalone basis declined from Rs 8,186.51 crore to Rs 7,729.64 crore q-o-q.
  • The bank’s pre-provision operating profit on a q-o-q basis was reduced from Rs 15,432 crore to Rs 15,137 crore.
  • Net Income Interest grew in single digits, missing expectations of double-digit growth.
  • Net profit growth lowest since December 2016.
  • Asset quality worsened with Non-Performing Assets (NPAs) increasing to 1.47% from 1.32% q-o-q and 1.36% y-o-y.
  • Retail loans shrunk by 1% over the last quarter.

HDFC Bank Statement

HDFC Bank attributes the lethal second wave of COVID-19 in the country to have curtailed business activities for 2/3rd of this quarter. The bank says that the lower revenues are on account of a decrease in retail loans, third-party product sales, card spending, and efficiency in collection efforts. The bank also highlighted volatility in the Indian and global markets brought in by COVID-19 disruptions.

The private lender further reports a spike in the credit cost ratio from 1.64% to 1.67% q-o-q.

What Does This Mean For The Investor?

While the performance of the bank in the face of the pandemic is commendable on a y-o-y basis, quarterly earnings have been impacted negatively. 

Analysts have expressed confidence in the bank’s asset quality and positive operating profit growth in the future. Nevertheless, it is likely that the effect of the second COVID wave and the impending third wave impact the lender’s Q2 FY22 results as well. This is expected to be a sector-wide concern. HDFC is so far the first private lender in the country to have released its Q1 FY22 results.

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