HDFC Bank’s Q1 results: Net profit down 2%, net interest income rises 3%

HDFC Bank has announced a net profit of ₹16,175 crore for the first quarter of FY25, marking a 2% decrease from the ₹16,511.9 crore reported in the previous quarter.This result narrowly exceeded the CNBC-TV18 poll estimate of ₹15,693.1 crore.

The net interest income was 2.6% up in the mentioned quarter.

The bank’s provisions for the quarter stood at ₹2,602 crore, a reduction compared to ₹13,511.64 crore in the previous quarter.

However, asset quality showed some deterioration, with the Gross NPA ratio rising to 1.33% from 1.24% QoQ, and the Net NPA ratio increasing to 0.39% from 0.33% QoQ.

It is important to note that the year-on-year numbers are not directly comparable due to the recent merger with Housing Development Finance Corporation (HDFC) on July 1, 2023.

During the earnings call, Srinivasan Vaidyanathan, CFO of HDFC Bank, highlighted several key points.

The bank added 2.2 million new liability relationships in Q1 and reported a core net interest margin of 3.47% on total assets and 3.66% based on interest-earning assets.

While the Gross NPA ratio stood at 1.33%, excluding NPAs in the agricultural segment would reduce it to 1.16%.Vaidyanathan noted that deposit growth was driven by both external and internal factors, although seasonality affects deposits and Q1 is typically slower.

He also mentioned that liquidity in the system was tight during the quarter and emphasised the bank’s strategy to focus on driving deposits through branches rather than pursuing large-ticket deposits. HDFC Bank remains a major player in the current account segment.

Additionally, the bank’s board has given an in-principle approval to initiate the process for listing HDB Financial Services Limited (HDBFS) through a potential initial public offering (IPO).

The listing is a requirement under RBI norms for Upper Layer NBFCs, and the bank will seek necessary approvals from regulatory authorities for this move.

Market experts have reacted positively to the results.

Prakash Diwan noted that despite the profit drop, the bank’s performance is impressive, highlighting the significant reduction in provisioning as a key positive indicator.

He suggested that if this trend continues, future quarters could see improved metrics.

Rahul Malani from Sharekhan by BNP Paribas described the earnings as favorable compared to expectations.

He highlighted that the bank’s net interest margins had improved slightly and core pre-provision operating profit (PPoP) growth was modest but better than anticipated.

Malani acknowledged the minor deterioration in asset quality, attributing it to seasonal factors in the agricultural sector, and emphasised that overall, the bank’s performance was strong.