Retail Competition, Asset Quality a Worry
- 1.
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Saturday , January 19, 2013
Retail Competition, Asset Quality a Worry
Publication: The Economic Times , Agency:Bureau
Edition:Pune/Mumbai , Page No: 12, Location: BottomCenter , Size(sq.cms): 200
Retail Competition, Asset Quality a Worry
MECHA SARAF
ETINTELLICENCE GROUP
When it comes to HDFC Bank, there
are hardly any surprises during the
earnings season as analysts and in
vestors have realised over the past
few years.
For the 35th consecutive quarter,
HDFC Bank, India's thirdlargest pri
vate lender, posted a 30% yearon
year growth in its net profit, driven by
a higher fee income, stable margins
and robust asset quality.
The bank's loan book expanded 24%
yearonyear, supported by retail and
corporate loans. However, the major
contributor was retail loans, growing
at 28 %. Auto loans and credit to
mediu m a n d s m a l l e n t e r p r i s e s
(MSME), which constitute 40 % of
the total portfolio, were the major
drivers of the retail loan book.
T h e u n s e c u r e d p o r t f o l i ocredit
cards and personal loans business al
so grew substantially. Its current and
savings account or CASA ratio con
tinued to be stable at 45.4%, helping
the bank to maintain a stable cost of
funds and margins. Net interest mar
gin, which is the difference be
CALCULUS
HDFC BANK
tween yield on
a d v a n c e s a n d
cost of deposits, was lower marginally
from the last quarter. Still at 4.1%, it
was within the 3.94.2% range as
guided by the bank and continues to
be one of the highest in the industry.
Net interest income, or the difference
between interest earned and interest
s p e n t , w a s s l i g h t l y l o we r t h a n
expectations as loan growth was
slightly lower than usual. However,
higher fee income and sta
ble provisioning helped the bank to
compensate this slowdown and
report a consistent bottom line
growth. However, for the quarter to
December, the bank showed some
stress on asset quality Bad loans
increased 14% sequen
tially on an absolute basis. More than
80% of this Rs.298 crore rise in bad
loans can be attributed to retail
assets, with 50% of it coming from the
commercial vehicles and construction
equipment segment. However, the bad
loanstototal loans (gross) ratio was
just 1% and with a provisioning
coverage ratio of 80% this is not a
very serious concern. Almost all
b a n k s a r e t a r g e t i n g t h e retail
s e g m e n t t o s u p p o r t l o a n growth.
Hence, HDFC Bank will also have to
reckon with increased competition
u n l e s s i n v e s t m e n t a c t i v i t y picks
up. Asset quality might also be under
pressure, especially, in the retail
segment. At Rs.662.70, HDFC Bank is
trading at a price to book value of 4.5
FY13. At this valuation, all the posi
tives have already been factored in
and there appears to be limited
upside.
megha.saraf@timesgroup.com