HDFC Bank profits up for 9 months ended 30 September

HDFC Bank has recorded an impressive Rs. 437.18 million profit before tax for the nine-month period ending 30 September 2018 as against Rs. 223.85 million in the corresponding period of 2017. The profit after tax is 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%. The interest expense which was reduced from Rs. 3,516.40 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% from Rs.216 million to 280 million. 

This was revealed by 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 31 December 2017, an increase of 6.2%. However, total assets base was scaled down strategically by managing the investment and liquid assets portfolio at an optimal levels 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% 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% as against 1.05% in the year end 2017 and the Return on Equity (ROE) has risen from 7.27% to 9.96%. 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% as against the regulatory minimum requirement of 6.375%, 7.875% and 11.875% respectively. 

The bank also maintained the Statutory Liquid Asset Ratio of 25.31% and Liquidity Coverage Ratio of 93.43% as against the regulatory requirements of 20% and 90% respectively as at the end of the 3Q 2018.

The reported gross non-performing loan (NPL) ratio which stood at 20.53% as against 18.72% on 31 December 2017 characterises 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 Employee’s Provident Fund (EPF), which contributed slightly more than 60% of the bank’s total NPLs as on the reporting date of 30 September 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 at10.04% as against 8.99% 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% of the loan portfolio has been distributed to the low and middle income segment that represent 60% to 70% of the population. 

However as a strategy to improve the quality of the credit portfolio, 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 31 December 2018. The bank has obtained the shareholders’ approval at the Extra Ordinary General Meeting held on 17 September, 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.