HDFC Bank Limited (HDB) reported first-quarter earnings for fiscal year 2012-2013 on July 13. Total income for the quarter rose to INR95.368 billion from INR70.98 billion, up 34% year-on-year. Net Interest Income for the quarter was INR34.84 billion, up 22%.
HDFC Bank is India's second largest private sector lender with a balance sheet of INR3,600 billion. It has a presence in almost 1,400 cities with more than 2,500 branches and 9,000 ATM's. Here is a snapshot of the quarterly performance:
Quarter ended 6/30/2012
Quarter ended 6/30/2011
Net interest income plus other income
Net interest income
In billion rupees
The Macro outlook
Since 2011, the Indian economy (India Fund, Inc.: IFN) has been facing several headwinds as growth has slowed, inflation refuses to moderate, and the currency has depreciated considerably. GDP growth for the fourth quarter of 2011 came in at 5.3%—the lowest in nine years. The fiscal deficit for 2011-2012 was $92.53 billion, 5.9% of the GDP.
The burgeoning fiscal deficit can be attributed to the government's policy of subsidizing fuel prices in order to appease the vote bank. The local currency has depreciated more than 15% against the dollar in the last year, and has been one of the worst-performing currencies in the world. Standard & Poor's downgraded India's sovereign credit rating in the early part of the year to BBB-, which is the lowest investment grade rating. It has also warned of a one-in-three chance of the rating being downgraded further.
However, as Prime Minister Dr. Manmohan Singh takes over the finance portfolio from the outgoing minister Mr. Pranab Mukherjee, there seems to be some hope. Dr. Singh was the person who orchestrated the epic reforms of 1991 that unleashed a wave of export-oriented growth. The government also took the bitter pill recently by increasing fuel prices by more than 10%, and the recent drop in international crude prices only makes Dr. Singh's job a little easier.
In spite of severe economic ups and downs, earnings per share for HDFC Bank have grown at a rate of 23% over the past decade as the loan portfolio continues to expand. The gross NPAs for the bank stand at 1% of gross advances and net NPAs at 0.2% of net advances. As of June 30, 2012, the bank held INR766.74 billion in savings deposits and INR416.82 billion in current deposits, representing growth of 18.4% and 7.4%, respectively.
HDFC competes neck and neck for the retail and commercial banking business with ICICI Bank Ltd. (IBN), which reports earnings on July 27. Any investor seeking exposure to the longer-term India growth story needs to give due consideration to both these banks.