for a second straight quarter, HDFC Bank has posted a 25% rise in its net profit, lower than the decade-long trend of 30%. Paresh Sukthankar, deputy managing director, said the bank?s profitability hinges on the growth of the economy and that it is now focusing on reining in the operating expenses. In a conference call after the release of the results, Sukthankar said the bank?s margins will remain in the 3.9-4.5% range as indicated and both deposit and loan growth have got a boost from the FCNR swap window of RBI. Excerpts:
What is the main reason for your profit growth this quarter?
Clearly, the profit growth has been boosted by tight cost control. The expense growth has been held back below 4%; asset quality has actually improved to give that sort of cushion in terms of provisioning. If you look at the bottomline, apart from the revenue growth, it has been all about tightening expenses and flat provisioning because asset quality has been stable. The cost-to-income ratio, which was 47.2% last year, had already come down to about 46% by September and is now at 43%.
Why has the growth in retail loans been muted?
The loan growth, at about 14% on year-on-year basis, does not include home loan purchase. As against buying about R1,200-1,500 crore every quarter, we have bought only R500 crore in the December quarter. Among other products such as commercial vehicle and construction equipment portfolio, we have held flat or marginally lower, given that demand for these products has been sluggish.
Secondly, in the last one year, asset quality concerns have been there in these products. So, one or two products have been consciously moderated.
The NII growth has been only 16%, but loan growth is stronger. Why?
A fair portion of the balance sheet growth has come in from the FCNR. A lot of it has come in, after the window closed in November. And that had also resulted in increase in overseas loan book, in our overseas branches by about $2 billion. We have had an increase in the overseas book, which is at a lower margin one. The swap comes to the local books sometime towards the latter part of the quarter. That is how you see the NII growth is lower than the balance sheet growth. The overall loan growth would have been 18.3% excluding the FCNR leverage.
How do you explain the corporate loan book of 22%, which is a sharp rise from 15% in Q2?
The loans that we have put up are essentially large corporate lending at competitive rates to customers, so a large part of it could be market share gain. The regular growth on the emerging corporate and the SME has also continued. For the longest time, we were about 18-20% on the wholesale side. Then we came down to about 15% in a quarter or two and now we are getting back.
HDFC Bank has given a profit growth of 30% every quarter for a long time but for the last two quarters, this has slipped. Your reasons.
I think we have related our growth rate to the system growth and the system growth to the GDP growth rate. If the GDP growth is languishing at 4.5% and the banking system is growing at 14%, in that case, the bottomline even if grows faster than topline. For us, we have never had a fixation to a particular number. For a number of years, the economy has been growing.
