Indian Bank’s World-Beating Profit Growth at Risk on Cash Ban

  • HDFC Bank quartely profit growth below 20% for first time
  • Slowing loans and narrowing margins temper pace of growth

HDFC Bank Ltd., India’s most valuable lender by market capitalization, saw its quarterly profit advance at the weakest pace in at least 20 years as loan growth slowed while deposits surged.

Net income for the three months ended Dec. 31 grew 15 percent to 38.7 billion rupees ($568 million) from a year earlier, the Mumbai-based lender said Tuesday in an exchange filing. That compared with the 37.7 billion-rupee average of 18 analyst estimates compiled by Bloomberg.

The lowest non-performing loan ratio among the biggest Indian lenders and fast lending growth had helped HDFC Bank, helmed by Aditya Puri, report annual profit growth of more than 20 percent in the last two decades -- a feat unmatched by any of the world’s 200 biggest lenders, data compiled by Bloomberg show. Prime Minister Narendra Modi’s Nov. 8 move to invalidate high-denomination currency notes has dented demand for loans as cash-intensive businesses came to a standstill and deposits surged, with millions of Indians lining up to deposit their worthless cash.

“The cash ban has weakened loan growth and non-interest income, eroding the pace of profit growth at HDFC Bank,” said Diksha Gera, a Singapore-based Bloomberg Intelligence analyst. “The bank seems to have parked part of the deposit surge in government securities and other low-yielding alternatives, instead of deploying it as loans, which has lead to contraction in lending margins from the previous quarter.”

Shares of the lender rose 1.8 percent to 1,267.55 rupees in Mumbai on Tuesday, extending this year’s gain to 5.1 percent. The 10-member S&P BSE Bankex Index has gained 4.7 percent since Dec. 31.

Here are other key earnings figures reported by the bank:

  • Outstanding loans rose 13.4% to 4.95 trillion rupees from year earlier
  • Net interest income increased 17.6% to 83.1 billion rupees
  • Operating expenses gained 15% to 48.4 billion rupees
  • Capital-adequacy ratio remained unchanged from the previous year at 15.9%; compared with at least 9% required by March 2019 under Basel III rules
  • Gross non-performing assets rose to 1.05% from 0.97% in the previous year