Higher interest income helps HDFC Bank to report strong profits up to Sept.
HDFC Bank has recorded an impressive Rs. 437.18 million profit before tax (PBT) for the nine months period ending September 30, 2018 as against Rs.223.85 million in the corresponding period of 2017.
The profit after tax had been Rs.326.23 million as against Rs.85.11 million in the same period 2017. The bank’s interest income has grown from Rs. 4, 893.40 million to Rs. 5, 004.63 million recording an increase of 2.27 percent.
The interest expense which was reduced from Rs.3516.40 million to Rs.3, 328. 19 million was one of the major drivers of the profitability escalation in 2018. The fee-based income has shown an impressive growth of 30 percent from Rs.216 million to Rs.280 million.
This was revealed by the Chief Executive Officer/gm, Palitha Gamage in a press release announcing the bank’s 3Q 2018 performance.
The bank’s loan portfolio stood at Rs.37.13 billion as against Rs.34.97 billion as at 31st December 2017 an increase of 6.2 percent. However, total assets base was scaled down strategically by managing the investment and liquid assets portfolio at an optimal level in order to improve profitability.
Therefore, the deposit portfolio was strategically reduced to Rs.35.36 billion from Rs.36.65 billion during the first nine months of the year
2018. The bank had been maintaining a liquid assets ratio of above 30 percent in order to face the anticipated liquidity challenge, pending the extension of the Central Bank’s deadline for meeting the regulatory minimum capital requirement of Rs.5 billion.
The return of assets (ROA) stood at 1.72 percent as against 1.05 percent in the year end
2017 and the return on equity (ROE) has risen from 7.27 percent to 9.96 percent.
HDFC Bank maintained the regulatory capital adequacy ratios (common equity tire 1 capital adequacy ratio, tier 1 capital adequacy ratio and total capital adequacy ratio ) at a healthy level of 13.31 percent as against the regulatory minimum requirement of 6.375 percent, 7.875 percent and 11.875 percent respectively.
The bank also maintained the Statutory Liquid Asset Ratio of 25.31 percent and Liquidity Coverage Ratio of 93.43 percent as against the regulatory requirements of 20 percent and 90 percent respectively as at the end of the 3Q 2018.
The reported gross non-performing loan (NPL) ratio, which stood at 20.53 percent as against 18.72 percent on 31st December 2017 characterizes the bank’s high exposure to the low and middle income customers mainly through housing finances, who tend to be more susceptible to economic cycles.
The high level of NPL was mainly due to defaults from housing finance backed by the Employees’ Provident Fund (EPF), which contributed slightly more than 60 percent of the bank’s total NPLS as on the reporting date of September 30, 2018.
The Central Bank annually reimburses HDFC Bank for EPF backed loans in arrears for more than three months. However, the gross NPL ratio excluding EPF backed housing loan portfolio also recorded at 10.04 percent as against 8.99 percent at the end of the year 2017.
Meanwhile, HDFC being a mandated housing finance bank, it is obligated to pay a greater commitment to this segment of the housing finance market which represents the largest segment of the country’s population.
Over 70 percent of the loan portfolio has been distributed to the low and middle income segment that represents 60 percent to 70 percent of the population. However as a strategy to improve the quality of the credit profolio, the bank is paying an increasing attention to diversifying the loan book to wider income housing loans , business finance, project finance, leasing , pawning etc, with risk based pricing strategies in the medium term. The bank is also focusing on fine tuning its newly implemented core banking system and tightening some of the operational procedures,
Nevertheless, the bank is yet to meet the Central Bank’s regulatory minimum capital requirement of Rs. 5 billion by the extended deadline of 31st December 2018. The bank has obtained the shareholders’ approval at the Extra Ordinary General Meeting held on 17th September 2018, to issue perpetual bonds to raise Rs.1.4 billion additional Tier -1 (AT-1 Bond) capital within the Basel 111 guideline issued by the Central Bank to meet the minimum capital requirement. Other necessary approvals and compliance requirements have already been fulfilled and awaiting to issue the AT-1 Bond at the convenience of the General treasury for the investment.