HDFC Bank is always one of the first major companies in India to declare its results and has been setting a positive tone for the corporate sector, quarter after quarter. Here are key Learning Points from the No. 1 private bank’s quarterly and yearly numbers for the fourth and the last quarter (Jan-March) of the Financial Year 2018-19.
1. Record High Profits
HDFC Bank’s Rs 5,885.10 crore quarterly profit was highest ever for any of its previous quarters. This was also the third straight quarter when the bank’s profit was in excess of Rs 5,000 crore. Earlier, the bank had reported Rs 5,585 crore profit for December quarter (Q 3, October-December) and Rs 5,005.70 crore for September quarter (Q 2, July-September).
The Bank posted 22.60% YoY (it means over the Jan-March Quarter of the Financial Year 2018-19) growth in Net Profit (I e, profit after all taxes).
Please remember, for a bank, the major source of its profits is interest earned on its loans (assets).
2. Strong Net Interest Income (NII) Growth
Net interest income (NII) rose 22.8 per cent YoY to Rs 13,089.50 cr for Q 4. This was made possible as the loan portfolio (asset book) had a growth of 19.8 per cent.
3. A Very Healthy NIM
Net interest margin (NIM) came in at 4.4 per cent compared with 4.3 per cent in December quarter and 4.4 per cent in the year-ago quarter. HDFC Bank’s NIM has been consistent at 4.3-4.4 per cent for 10 quarters now.
Net Interest Margin (NIM), which is differential between average interest percentage received on loans minus average interest percentage paid on deposits is one of the healthiest for the bank, globally.
4. Healthy Non Interest Revenue
This is the second highest source of revenue for a bank, also known as Other Income. It includes Renewal Fees, Processing Fees, Locker Rent, Income from Investments and Commission received from Letters of Credit and Bank Guarantees.
Other income, or non-interest revenue, came in at Rs 4,871.2 crore for the quarter, up 15.2 per cent from Rs 4,228.60 crore reported for the same quarter last year.
5. Low Level of Non Performing Assets (NPAs)
NPAs are of two types: Gross NPAs and Net NPAs. This indicator largely determines the quality of credit assessment and monitoring of loan portfolio and also determines the market price of a bank in the share markets. Here, the bank has scored substantial management skills. While all other banks have / likely to be posting a worse performance, HDFC Bank has shown stability at such acceptable and low numbers.
Percentage of gross non-performing assets stood at 1.36 per cent as of March end against 1.38 per cent in December quarter and 1.30 per cent in the same quarter of the previous year.
For each outstanding NPA account, the bank has to write off a fixed percentage out of the bank’s profits, thus hurting its profit figures. This activity is called Provisioning. Provisions for the quarter rose to Rs 1,889.20 crore from Rs 1,541.10 crore in the year-ago quarter, but were less than 22,11.53 crore in the December quarter. It is a commendable performance.
6. Even in Tough Corporate Times, Wholesale Loan Book Moves Up by 32%
The retail loans of the bank grew by 19%. Surprisingly, wholesale loans (also known as Corporate Loans) grew by 31.9%. This has improved the retail-wholesale ratio to 54:46. Total advances as of March 31 stood at Rs 8,19,401 crore, up 24.5 per cent YoY. Domestic advances grew 24.6 per cent as of March 31, 2019.
7. Huge Balance Sheet Size
The size of a bank from another is compared basis the balance sheet size. Total balance sheet size as of March 31, 2019 rose to Rs 1,244,541 crore from Rs 1,063,934 crore as of March 31, 2018. I am sure this will take it at the No. 1 position in the private banking sector straightaway leaving ICICI Bank far behind.
Though it is still around 1/3rd of SBI. But, in profits, it is far, far ahead of any Indian bank including SBI.
8. Capital Adequacy Ratio (CAR)
The bank said total capital adequacy ratio (CAR) at 17% as on March 31 was much higher than the regulatory requirement of 11%. The ratio in FY19 improved over 14.8% at the end of March 2018.
9. Branch Network and Employee Strength: 53% branches in semi-urban, rural areas
The bank has distribution network of 5,103 banking outlets and 13,160 ATMs across 2,748 cities and towns as of March 31, out of which 53 per cent are in semi-urban and rural areas.
The bank had a network of 4,787 banking outlets and 12,635 ATMs across 2,691 cities in the year-ago period. The bank has 98,061 employees at the end of FY19 as against 88,253 in FY18.
10. Update on Fully Owned Subsidiaries
HDFC Bank has two fully owned subsidiaries.
HDFC Securities Limited or HSL and 2. HDB Financial Services Limited or HDB
For FY19, HSL reported total income of Rs 782.1 crore, which was less than Rs 800.1 crore in FY18. Profit after tax for the year came in at Rs 329.8 crore. This was also lower than Rs 344.7 crore reported for the year-ago quarter.
In the case of HDB, NII grew 17.2% to Rs 3,378.8 crore in FY19 from 2,882.2 crore in FY18. Profit after tax came in at Rs 1,153.2 crore, up 23.6% over Rs 933 cr in FY18.
