Private sector lender HDFC Bank on Saturday reported a 19.6% year-on-year (y-o-y) rise in net profit to ₹6,659 crores for the three months to June owing to a rise in net interest income (NII) and lower tax outgo. The net interest income of HDFC – the difference between interest earned and interested expended – grew 17.8% y-o-y to ₹15,665.4 crores. The net interest margin of HDFC — a key measure of profitability – stood at 4.3%, unchanged from the same period last year.

However, non-interest income fell considerably to Rs 4,075.31 crore in the quarter ended June 2020, down 18 per cent YoY largely due to lower fees & commissions (dipped 37 per cent).

Kindly refer to the Glossary section at the end to understand the banking jargon in an easy way

Key Highlights of Quarter 1 :

  • Bank’s asset quality improved in the June quarter with gross bad loan ratio declining 4 basis points year-on-year to 1.36%
  • Net NPA ratio was also down 10 bps to 0.33% in Q1 FY21
  • The bank’s total advances were at ₹10.03 trillion in Q1 of FY21, an increase of 20.9% over the same period last year
  • The domestic retail loans grew 7.2% and domestic wholesale loans grew 37.6%, it said, adding that the domestic loan mix between retail and wholesale was 48:52
  • Total deposits stood at ₹11.89 trillion, an increase of 24.6% over 30 June last year
  • Its current and savings account (CASA) deposits grew 26% with savings account deposits at ₹3.27 trillion and current account deposits at ₹1.5 trillion
  • CASA deposits now comprise 40.1% of total deposits as of 30 June 2020

The continued slowdown in economic activity has led to a decrease in retail loan origination, sale of third party products, use of credit and debit cards by customers, efficiency in collection efforts and waivers of certain fees,” it said in a statement on Saturday, adding that as a result, fees and other income were lower by approximately ₹ 2,000 crore

On Friday, HDFC Bank shares had ended 3.46 per cent higher at Rs 1,099.15 apiece on the BSE, outperforming the benchmark Sensex index which climbed up 1.50 per cent.

In conclusion, reporting of a 20% profit increase comes at a time when the company is looking for replacements for its rockstar CEO Mr. Aditya Puri who is set to retire, which brings hope and positive sentiments for the market.

Glossary

  • Net Interest Income: represents the difference in the interest earned from a bank’s lending activities to its customers and the interest paid to account holders or depositors, if we give a loan of Rs. 100 to a borrower at 7% interest and then someone deposits Rs. 100 with the bank at an interest rate of 4%. Then the remaining 3% is called Net Interest Income.
  • Net Interest Margin: It is arrived at by dividing Net Interest Income with the Average income earned from interest producing assets such as loans given out to borrowers.
  • Non Performing Assets(NPA): they are assets for which interest is overdue for more than 90 days. It includes sub-standard assets, doubtful assets and loss assets – all these three assets combined. In other words, they are bad loans for which interest has not been realized for more than 90 days
  • Current and Savings account (CASA): is the amount of money that gets deposited in the Current and Savings Accounts of bank customers. The bank pays very low or no interest for deposits in current accounts whereas the deposits in Savings Accounts receives slightly higher interest rates. It is the cheapest and major source of funds for banks. This fund source is in turn used to distribute Home LoansPersonal Loans etc

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