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While everyone obsesses with the US oligarchs and their money printing presses courtesy of the Federal Reserve reducing their cost of capital to nearly nil, HDFC Bank (NYSE:HDB) reported overnight in India. Yet another impressive quarter, although as I said this weekend, it's been difficult for me to keep riding the train due to valuation.

This is not a market where those who use valuation metrics are rewarded. September through mid October has seen another wonderful run in the stock price. If you are new to technical analysis and want to see the term "breakout out of a base" explained in picture, behold:

Can you imagine how profitable the bank would be if it was based in the US and lived under the gentle hand of our central bank rather than having to deal in a non Banana Republic financial system? Their spreads would be in the stratosphere. If you are not familiar with India's central banker - he is the exact opposite of the American regime. He believes free money is not a birthright, he believes banks should be regulated firmly (with teeth, not with empty legislation) and he believes bubbles not only can be seen (which American central bankers deny) but should be leaned against before they get out of control. [Dec 28, 2008: NYT - How India Avoided the Crisis] Due to these crazy thoughts generations of taxpayers do not need to support the Indian banking system. He is effectively the anti-Greenspan/Bernanke.

When your regulators are not captured by corporate interests, things tend to work out a bit better in the long run.

Via Reuters:

  • HDFC Bank (HDB) India's No. 2 private sector lender, reported a forecast-beating 30 percent rise in quarterly net profit on rising fee income and trading gains and a top official said loan growth would improve.
  • Bad debts fell in the quarter (fantastic), a pointer to strengthening corporate and consumer health as the Indian economy shows signs of revival, although loan growth remained at about half the rates of recent years.
  • HDFC Bank reported trading gains of 1.63 billion rupees ($35.4 million), up from a small loss a year earlier, and profits on favourable market moves are also expected to power earnings of other lenders during the quarter, analysts said.
  • HDFC Bank's loan growth slowed to 14.8 percent in the first six months of 2009/10 from an average of more than 30 percent over the past four years as firms shelved expansion plans.
  • Its bad debts fell to 1.8 percent of gross loans at the end of September from 2.1 percent three months earlier, and other banks are also expected to gain from declining bad debts. (compare to our "best banks" i.e. JPMorgan at 4%, while the worst are closer to 6%)
  • The New York-listed bank posted a net profit of 6.87 billion rupees ($149 million) in the September quarter, helped by a 31 percent rise in fee-based income of 6.92 billion rupees.
  • Indian banks were mostly insulated from the direct impact of the credit crisis, but the global downturn hit Asia's third-largest economy harder than expected and the industry's rapid growth slowed.
  • "Concerns over asset quality and slowing credit growth that were a major overhang on bank stocks are now receding as the GDP growth outlook continues to improve," Angel Broking analyst Vaibhav Agrawal said.
  • For the banking industry, loans grew an annual 12.6 percent in late September, a far cry from the robust 25 percent expansion averaged last year, central bank data showed.

Still a lot of upside as the Indian economy revs back up.

[Jan 7, 2009: Bookkeeping - Starting HDFC Bank on Satyam Scandal]

Disclosure: Long HDFC Bank in fund; no personal position

Source: HDFC Bank's Earnings Propel 30%, But Valuation a Concern