HDFC Bank Profit Misses Estimate as Bad Loans Rise on Virus Wave

Pedestrians walk past an HDFC Bank Ltd. branch in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

HDFC Bank Profit Misses Estimate as Bad Loans Rise on Virus Wave

HDFC Bank Ltd. posted a smaller-than-expected profit as India’s largest private-sector lender stepped up its bad loan buffers and the recent coronavirus surge hurt asset quality.

Net income stood at 77.3 billion rupees ($1 billion) in the three months through June, compared with 66.6 billion rupees a year ago, it said in a statement Saturday. That lagged the average estimate of 79.2 billion rupees by 15 analysts in a Bloomberg survey.

HDFC Bank is the first major lender in India to report results as the nation emerges from a second coronavirus wave that shuttered businesses and led to millions losing jobs. While the country’s most valuable bank has been less impacted by the severity of the pandemic on its asset quality, it saw its retail loans shrink by 1% in the June quarter from three months prior even as its overall loan book growth stayed robust at 14.4% annually.

“The disruptions following the outbreak, have led to a decrease in loan originations, the sale of third party products, the use of credit and debit cards by customers and the efficiency in collection efforts,” the bank said. “This may lead to a continued rise in the number of customer defaults and consequently an increase in provisions thereagainst.”

The Mumbai-based bank’s gross bad loan ratio widened to 1.47% at the end of June, from 1.32% in the prior quarter.

The ravaging impact of Covid-19 on businesses prompted the Reserve Bank of India to extend a debt restructuring facility that allows lenders to not classify some loans as non-performing until the end of 2022. This relaxation, which can be invoked until end-September, will likely mask the true extent of stressed loans in the financial sector.

HDFC Bank’s restructured portfolio stands at 80 basis points of the loan book end-June compared with 60 basis points in March, BloombergQuint cited Jimmy Tata, chief credit officer, telling analysts on a conference call.

HDFC Bank set aside 48.3 billion rupees toward provisioning in the June quarter compared with 46.9 billion rupees three months prior and 38.9 billion rupees a year ago.

The bank is also waiting on the Reserve Bank of India’s decision to lift its ban on issuing new credit cards and launching digital products after the central bank penalized the lender for repeated technology glitches.

©2021 Bloomberg L.P.

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