HDFC Bank Q3 Earnings Reflect Y/Y Growth, Provisions Up - Analyst Blog

HDFC Bank Ltd. 's ( HDB ) third-quarter fiscal 2015 results recorded a net profit of INR27.95 billion ($0.45 billion), up 20.2% year over year.

HDFC Bank's quarterly results continued to reflect a commendable performance with appreciable growth in the top line with both net interest income and non-interest revenues recording a rise. Moreover, improvement in deposits and advances remained sturdy. However, elevated operating expenses as well as provisions weighed on the results.

Performance Details

HDFC Bank's net revenue increased 21.4% year over year to INR82.35 billion ($1.33 billion). The rise was driven by higher interest income, partially offset by elevated interest expense.

Net interest income rose 23.0% year over year to INR57.00 billion ($0.92 billion). Moreover, net interest margin (NIM) stood at 4.4%, up from 4.2% in the year-ago quarter.

Non-interest revenues amounted to INR25.35 billion ($0.41 billion), rising 18.0% from the prior-year quarter. The increase was due to higher fees and commissions, profit on revaluation/sale of investments and rise in miscellaneous income, partly offset by a reduction in foreign exchange & derivatives revenues.

Operating expenses totaled INR34.56 billion ($0.56 billion), up 19.4% from the prior-year quarter. The cost-to-income ratio came in at 42.0%, compared with 42.7% as of Dec 31, 2013.

As of Dec 31, 2014, total deposits increased 18.6% year over year to INR4.14 trillion ($0.06 trillion). Likewise, advances grew 17.0% year over year to INR3.47 trillion ($0.05 trillion), driven by growth in domestic retail loans and wholesale loans.

Additionally, HDFC Bank's total capital adequacy ratio (CAR) as of Dec 31, 2014 (computed as per Basel III guidelines) came in at 15.7%, higher than the regulatory minimum of 9.0%. Moreover, Tier-I CAR stood at 11.97% as of Dec 31, 2014.

Asset Quality

Asset quality represented a mixed bag with provisions and contingencies rising 44.1% year over year to INR5.60 billion ($0.09 billion). However, gross nonperforming assets of gross advances stood at 0.99% as against 1.01% as of Dec 31, 2013.

Total restructured loans to gross advances came in at 0.1% versus 0.2% as of Dec 31, 2013.

Growth in Network

HDFC Bank continued to expand its distribution network. During the quarter, the bank added 323 branches, increasing the total number of branches to 3,659 in 2,287 cities against 3,336 branches in 2,104 cities as of Dec 31, 2013. Further, total number of ATMs rose to 11,633 as of Dec 31, 2014 from 11,473 as of Dec 31, 2013.

Our Take

HDFC Bank faces several challenges in the form of persistently rising operating expenses and intense competition in the retail space from local peers like ICICI Bank Ltd. ( IBN ), UTI Bank, IDBI Bank and IndusInd Bank. Further, weakening asset quality continues to remain a drag on the bank's financials.

Nonetheless, the bank's initiatives to expand its branch network are expected to result in substantial augmentation in loans and deposits, which in turn will boost profitability going forward.

HDFC Bank currently carries a Zacks Rank #3 (Hold).

Among other foreign banks, CorpBanca ( BCA ) and HSBC Holdings plc ( HSBC ) are scheduled to report fourth-quarter 2014 results on Feb 17 and Feb 23, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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