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HDFC Bank, India’s largest lender by market value, said that earnings jumped by almost a third last quarter as the country sustained its economic expansion, raising expectations that the sector is on track for bumper profits this year.
The Mumbai-based lender’s net profit climbed to Rs119.5bn ($1.5bn) for the quarter to June 30, a 30 per cent increase on the same period last year, as bad loans remained under control and its net interest income climbed.
The results come days after HDFC Bank combined with housing finance giant HDFC Limited to create a financial services behemoth with a market cap of roughly $150bn.
Analysts say that the combined company is likely to be a major winner as India sustains its expansion — the IMF is forecasting the economy will grow 5.9 per cent this year, outshining China and the US.
“HDFC’s credit underwriting with the bank distribution opens up a large opportunity, just as the residential [house-buying] cycle is picking up,” JPMorgan analysts noted. The latest results do not reflect the effect of the merger.
As a result of the tie-up, HDFC Bank is betting it can sell additional banking products to 5mn HDFC Limited’s mortgage-buying customers.
The “home loan product is a very emotional product”, Srinivasan Vaidyanathan, HDFC Bank’s chief financial officer, said on Monday. “We would like to harness this bond with the home loan customers by leveraging our exhaustive distribution reach” to offer banking products to HDFC Limited’s existing customers. He said HDFC Bank now has 85mn customers — greater than the UK’s population.
The results from HDFC Bank come on top of a strong performance last year for the country’s lenders, with their post-tax profits increasing 38 per cent in the 12 months to the end of March from the same period a year earlier, according to the Reserve Bank of India.
Banks’ gross non-performing asset ratio, a measure of their bad loans, fell to a 10-year low of 3.9 per cent in March, according to central bank data.
During the last quarter, HDFC Bank was helped by a jump in its net interest income, the difference between what banks pay for deposits and earn from loans and other assets. Net interest income climbed 21 per cent to Rs236bn ($2.9bn) for the three months to June 30.
“Bank earnings are expected to be really good,” said Sneha Poddar, associate vice-president of fundamental research, broking and distribution at Mumbai-based financial services firm Motilal Oswal. “In fact, it will be one of the drivers for overall corporate earnings in Q1.”
The results from HDFC Bank kick off earnings for the country’s lenders, with ICICI Bank and Kotak Mahindra Bank to follow.
Operating expenses during the quarter, however, jumped 34 per cent to Rs140bn, as HDFC Bank added more than 1,000 bank branches to take its total to 7,860.