Year 2009 for HDFC Bank

The bank is one of the few which continued to grow its retail lending book even after the financial crisis. However, the growth rate has come down and officials say they will be cautious in their lending to the unsecured retail loan portfolio of credit cards and personal loans. The unsecured loan portfolio, which was at 12% of the loan portfolio last year, has fallen to 10.5% this year. HDFC  is now focusing on the following loans in the retail segment – auto loans and home loans, and to a lesser degree on – business loans, loans against securities and two wheeler loans.

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an ‘in principle’ approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI’s liberalisation of the Indian Banking Industry in 1994. HDFC Bank was incorporated in August 1994, and, currently has a nationwide network of 1,506 branches and 3,573 ATMs in 635 Indian towns and cities.

Stock Market Listings

The shares are listed on the Bombay Stock Exchange Limited and The National Stock Exchange of India Limited. The Bank’s American Depository Shares ( ADS ) are listed on the New York Stock Exchange (NYSE) under the symbol ‘HDB’ and the Bank’s Global Depository Receipts (GDRs) are listed on Luxembourg Stock Exchange.

The HDFC Group holds 19.38% of the Bank’s equity and about 17.70 % of the equity is held by the ADS Depository (in respect of the bank’s American Depository Shares (ADS) Issue). 27.69 % of the equity is held by Foreign Institutional Investors (FIIs) and the Bank has about 5,48,774 shareholders.

International Operations

HDFC Bank was planning to set up a branch at Hong Kong and already applied with the international authorities after receiving permission from the Reserve Bank of India (RBI). “We are planning our first-ever international foray with a branch in Hong Kong shortly and we have already received RBI’s approval and now clearance is awaited from the overseas authorities,” a highly placed bank official told PTI recently.

Profit for the Year 2009

HDFC Bank profit after tax Rs. 1293.57 crore for the quarter ended September 30, 2009. This is a sequential increase of 30.3% from Rs.992.33 crore for the quarter ended September 30, 2009.

The bank has indicated that its loan growth at the end of the year will be above 20%. But interest income did not grow as much because, most of the loans were provided to safe corporate. Similar to other leading private banks, HDFC bank has been going slow on the higher income providing but riskier personal loans segment.

The rise in profit has been from the increase in profits that came from treasury gains and a rise in fee income.

Loans Scene at HDFC Bank

Despite a jump in credit growth, the bank has not recorded any rise in interest income due to falling interest rates on loans. But, its net interest income rose marginally by around 5% to Rs 1,955 crore from Rs 1,867 crore as the bank increased the share of low-cost deposits. Its net interest margins were stable at 4.2%.

A big positive was high growth in the low-cost current and savings account (CASA) deposits, which now form 47% of total deposits. The loan growth for the second quarter has been higher at Rs 9,000 crore against Rs 5,000 crore in the first quarter. The advances at the end of the first quarter were at Rs 1,15,104 crores.

The bank is one of the few which continued to grow its retail lending book even after the financial crisis. However, the growth rate has come down and officials say they will be cautious in their lending to the unsecured retail loan portfolio of credit cards and personal loans. The unsecured loan portfolio, which was at 12% of the loan portfolio last year, has fallen to 10.5% this year.

The bank is now focusing on the following loans in the retail segment – auto loans and home loans, and to a lesser degree on – business loans, loans against securities and two wheeler loans.

The above loan portfolio changes has helped the bank to reduce its NPA 9Non-performing Assets) from 2.1% to 1.8%.

The other income saw a spurt of 56.4% to Rs 1,007 crore, as against a flat growth of interest income at Rs 3,991.9 crore.

Income from Treasury & Non-Core Income

HDFC Bank has seen its strong non-core income growth pushes revenues higher. The non-core income rose to Rs 1,007.4 crores.  In non-interest revenue, the bank’s income from fees and commissions was Rs 692.4 crores, up 17.9 per cent over the quarter ended September 30, 2008.  Treasury trading gain was at Rs 162.9 crores, and was substantially higher than the year-ago quarter but 36 per cent lower than in the June quarter due to hardening of bond yields in September.

Expenses are Under Control

There has been a marginal dip in employee expenses, even though the bank had hired 2,000 employees last quarter as the bank has been able to bring down its temporary staff. Even though the bank plans to add another 100 branches in the second half, it plans to keep the cost-to-income ratio around the current level.

Statutory Needs Met Comfortably

The bank’s capital adequacy ratio (CAR) on September 30 was 15.7 per cent, with Tier-I CAR at 10.9 per cent. However, the bank’s CAR is expected to cross the 17 per cent mark before the end of the year, when Rs 4,000 crore of warrants issued to its promoter, HDFC, are converted into equity shares.

Performance of Subsidiaries

HDFC Standard Life Insurance

The life insurance subsidiary of HDFC bank is yet to make profits and is expected to do so in the year 2013. Due to tighter cost controls, the additional capital infusion during the year has been reduced to Rs.250 crores compared to the planned need of Rs.350 crores.

HDFC Realty

HDFC’s holding in the website that has a comprehensive listing of properties in many cities of India, has been increased to 100%. Earlier the company has a partnership with Mahindra & Mahindra Ltd (M&M). As of now properties in Bangalore, Chennai, Coimbatore, Kochi, Kolkata, Mumbai, Nasik, Pune and Thiruvananthapuram are listed on the website.

Credit Rating & Corporate Governance Rating

The Bank has its deposit programs rated by two rating agencies – Credit Analysis & Research Limited (CARE) and Fitch Ratings India Private Limited. Both the agencies have given their highest ratings to the bank’s deposits.

The bank was one of the first four companies, which subjected itself to a Corporate Governance and Value Creation (GVC) rating by the rating agency, The Credit Rating Information Services of India Limited (CRISIL). The rating provides an independent assessment of an entity’s current performance and an expectation on its “balanced value creation and corporate governance practices” in future.

The bank has been assigned a ‘CRISIL GVC Level 1’ rating which indicates that the bank’s capability with respect to wealth creation for all its stakeholders while adopting sound corporate governance practices is the highest.

The Year Ahead for HDFC Bank

The year 2009 has been a year of belt tightening for HDFC bank. The bank is working more efficiently focusing on cost reduction in operations and in employees cost. The loans book is much healthier with the proportion of secured loans and corporate loans becoming higher.

The will to subject itself to a difficult Corporate Governance rating shows the high management quality of the bank. HDFC Bank will enter 2010 with a lot of strengths.