HDFC Bank Q3 profit up 30%, challenges ahead

India's second largest private sector lender HDFC Bank on Friday reported a persistent 30% year-on-year jump in its third quarter net profit at Rs 1,859 crore, driven by robust growth in other income and loan expansions. Since the last 30-31 successive quarters, the net profit growth has been in the range of 30-31%. India's second largest private sector lender HDFC Bank   on Friday reported a persistent 30% year-on-year jump in its third quarter net profit at Rs 1,859 crore, driven by robust growth in other income and loan expansions. Since the last 30-31 successive quarters, the net profit growth has been in the range of 30-31%.During the quarter, net interest income or the difference between interest earned and paid out, rose nearly 22% to Rs 3,800 crore. Other income increased 27% to Rs 1,800 crore aided by growth in fee and commission income.The quarterly numbers were almost in line with analyst expectations barring a small blip in non-performing assets. Gross non-performing asset (NPA) ratio rose to 1% as against 0.91% in the July-September quarter. Net NPA ratio remained at 0.20%, little changed from the previous quarter. Provisions and contingencies stood at Rs 307, up by Rs 14 crore from the previous quarter."The bank's provisioning policies for specific loan loss provisions remained higher than regulatory requirements. The NPA coverage ratio based on specific provisions (not including write-offs, technical or otherwise) was at 80% as on December 31, 2012. Total restructured loans (including applications received and under process for restructuring) were at 0.3% of gross advances as of December 31, 2012," HDFC Bank said in a press release.During the three month period, the loan book expanded more than 24% y-o-y to Rs 2.41 crore. Retail loans escalated about 30% y-o-y to Rs 1.30 lakh crore. This is way above the industry credit growth at around 16%. However, the bank refrains from lending long term significantly. Project finance, launched more than a year back, currently stands around 4% of the loan book. "There is no surprise in HDFC Bank's Q3 numbers," Vaibhav Agrawal, banking analyst, Angel Broking told moneycontrol.com."Other income was a key driver for net profit growth. Without this, it would not have been robust. NPAs showed some sign of deterioration though, it was a not a cuase to worry. Going forward, the lender may have to face challenge in sustaining the current growth momentum," he said.The bank's annualised return of asset (RoA) is at 1.8%, which is all time high for the bank. To maintain this run-rate, according to analysts, HDFC Bank have to further ramp up its credit growth to the tune of around 30% y-o-y. Any inorganic growth may also help the bank to hold on the high level of RoA.At 14.35 hrs HDFC Bank shares were trading at Rs 658, down about 1.50% on profit booking by investors.Source:Moneycontrol