HDFC Bank Ltd, India’s second-largest private sector lender by assets, grew loans faster than expected in the second quarter as more people borrowed to buy cars and homes, making up for a slower pickup in big-ticket corporate credit.
Indian banks have been battling slower credit growth and a surge in bad loans, after companies and consumers were squeezed by more than two years of weak economic expansion. Corporate loans have yet to revive, but lending to individuals is growing at a faster clip.
HDFC Bank, with its stronger retail business and relatively smaller exposure to project finance, has far fewer bad loans than bigger rivals and is seen by some analysts as a better bet for investors.
“We certainly have seen a bit of a spurt in the last quarter, some of it was underlying demand picking up for some retail loans,” Paresh Sukthankar, HDFC Bank’s deputy managing director, told a news conference.
On a medium to longer term basis he said the bank would like to remain positioned to outpace loan growth in the market as a whole, and he expected an uptick in corporate loan growth in the second half of the fiscal year.
The Mumbai-based bank said its loans grew about 28% from a year earlier, compared with less than 10 percent for the sector. Retail loans grew 29.3%. Net profit for the three months to September 30 rose to 28.69 billion rupees ($440 million), in line with analysts’ average estimate of 28.81 billion. Gross non-performing loans as a percentage of the total fell to 0.91% from 0.95% in the June quarter.
Cuts in minimum lending rates to pass on policy rate reductions by the central bank weighed on the net interest margin, that fell to 4.2% in the September quarter from 4.3% in the previous three months. Sukthankar said the bank aimed to keep the net interest margin in a range of 4.1% to 4.4%.
HDFC Bank will likely recoup some of the lost margin in coming quarters, said Vaibhav Agrawal, an analyst at Mumbai’s Angel Broking. Agrawal, who considers the lender among his preferred stock picks, described its asset quality as “rock solid”.
Shares in HDFC Bank, India’s most-valuable lender with a market capitalisation of more than $42 billion, closed little changed in a Mumbai market that edged down 0.1%. The stock has gained more than 6% since the start of September and is up nearly 15% this year, outperforming the banking sector and the main market index.