As Puri Term Ends, HDFC Bank Retains Historic Profitability

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India’s Most Valuable Lender HDFC Bank seems poised to dust off the negative impact of the pandemic, just as it did when the wave of doubtful debts Four years ago.

On Saturday, the private sector lender reported 18% net profit growth for the September quarter. TO ??7,513 crore, it far exceeded analysts’ estimates. This is explained by a strong growth of 18% in basic income. Margins remained intact and loan growth at 16% exceeded that of the industry by a mile.

The bank seems to have taken full advantage of the gradual unblocking of the economy. While the narrative is still lukewarm loan demand, HDFC Bank’s business loan portfolio grew 26.5% in the September quarter. However, the pain of the pandemic was visible in the personal loan portfolio, which posted one of its weakest growth on record at 5.3%.

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Resilience in the midst of trouble

“While there has been some improvement in economic activity during the current quarter, the continued downturn has resulted in a decrease in loan origination, sales of third-party products, use of credit cards and debit by customers and the effectiveness of collection efforts, “the bank said in its exchange record.

However, the retail loan portfolio appeared to be the only scar from the pandemic and was expected.

The lender’s asset quality metrics did not disappoint either. Measures of asset quality are unlikely to give a true picture of stress, given the range of forbearance available. The regulator has authorized a halt to the recognition of bad debts for restructured loans. An ongoing case has forced the Supreme Court to suspend labeling of delinquent loans, even if they are in default, until it delivers a verdict. HDFC Bank said its bad debt ratio would have been 1.37% instead of 1.08% in the absence of the status quo on bad debt recognition. Regardless of this abstention, the bank has made provisions on these accounts, which should reassure investors.

Management’s upbeat commentary stood out, analysts said. Most lending segments are either back to pre-pandemic levels or set to return in a few months, management said on a call after the results with analysts.

Restructuring under the total loan portfolio is not yet significant, management said. The regulator allowed lenders to restructure the loans without calling them bad after the moratorium ended in August. Analysts and bankers have warned that lenders could see at least 5% of their loan portfolios being overhauled. HDFC Bank believes that even the most vulnerable small business segment will be able to survive the pandemic.

An unprecedented economic contraction and a change of direction after 26 years has not shaken sentiment for the bank’s shares. The bank maintained its historic profitability even as the tenure of Managing Director and CEO Aditya Puri came to an end. So far, HDFC Bank investors don’t seem Panglossian in their penchant for the stock.

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