HDFC Bank takes conservative stance, hikes provisions, conserves capital

HDFC Bank has refrained from declaring an annual dividend for shareholders for the second consecutive year as it chose to conserve capital due to the heightened uncertainties of the Covid 19 pandemic.

“The board …has considered it prudent to currently not propose dividend for the financial year ended March 31 2021. The board shall reassess the position based on any further guidelines from the RBI in this regard,” HDFC Bank said. Last fiscal the Reserve Bank of India (RBI) had barred banks from declaring dividend in order to conserve capital due to heightened economic risks posed by Covid 19.

Taking a conservative stance in its accounting the bank also hiked total provisions to ensure it has enough buffer to manage an adverse economic environment in the near future.

Total provision increased to Rs 4694 crore including Rs 1300 crore of contingent provision and higher than the Rs 3785 crore provision reported in March 2020. The bank sacrificed the temptation to report higher net profit with a spike in provisions.

Higher provisions this quarter resulted in a 7% fall in sequential net profit. As a result the bank’s credit cost ratio increased to 1.64% from 1.25% in December 2020 and 1.51% in March last year.

“Higher provisions are a bit surprising at this point given that the Supreme Court (SC) moratorium on classifying loans as NPAs has been lifted and there is more certainty on the stressed loans in banks. Given that HDFC Bank has been proactive on provisioning it will be important to see what the management commentary on this is,” said Lalitabh Srivastawa, analyst at Sharekhan a BNP Paribas owned brokerage.

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The bank held floating provisions of Rs 1451 crore and total contingent provisions of Rs 5861 crore at the end of March 2021.

Despite the higher provisions, HDFC Bank’s net profit rose 18% to Rs 8187 crore in the quarter ended March 2021 from Rs 6928 crore a year ago led by a 26% rise in fees and other income even total advances rose 14%.

Other income rose led by 20% rise in fees and commissions to Rs 5023 crore from Rs 4201 crore. Net interest income or the difference between interest earned on loans and that paid on deposits increased 13% to Rs 17,120 crore from Rs 15,204 crore a year earlier.

Loan growth was surprisingly led by a 22% growth in loans to companies three times faster than the 7% growth reported for retail loans. Corporate loans now constitute 53% of the bank’s advances, HDFC Bank said.

HDFC Bank reported a slight uptick in gross NPAs due to the lifting of the NPA moratorium. Gross NPAs inched up to 1.32% in March 2021 compared to the 1.38% proforma NPAs reported in December 2020. Net NPAs increased to 0.40% from 0.36% a year earlier and higher than a surpressed 0.09% reported in December 2020.

HDFC Bank said it had restructured a total of 3.36 lakh accounts according to the one time restructuring framework of the RBI, totalling Rs 6508 crore of loans of which Rs 5456 crore were corporate accounts. It has made a 10% provision on these loans at Rs 651 crore.



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