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HDFC Bank: Cost efficiency is the key
Oct 14, 2009

Performance summary
  • Interest income grows by 6% YoY in 1HFY10 on the back of 13% growth in advances.
  • NIMs improve marginally due to increase in the proportion of CASA; CASA level higher at 50% in 1HFY10.
  • Operating expenses lowered in 2QFY10, cost to income ratio at 47% as against 55% in 1HFY09.
  • Net NPA to advances come down from 0.6% in FY09 to 0.5% in 1HFY10. Provision coverage ratio at 70% in 2QFY10.
  • Capital adequacy ratio (CAR) comfortable at 15.7%, Tier I CAR at 10.9% in 1HFY10.


Rs (m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Interest Income 39,912 39,919 0.0% 76,129 80,850 6.2%
Interest Expense 21,247 20,361 -4.2% 40,230 42,736 6.2%
Net Interest Income 18,665 19,558 4.8% 35,899 38,114 6.2%
Net interest margin (%)       4.1% 4.2%  
Other Income 6,431 10,074 56.6% 12,365 20,511 65.9%
Other Expense 13,867 13,702 -1.2% 26,761 27,507 2.8%
Provisions and contingencies 3,460 5,941 71.7% 6,905 12,529 81.4%
Profit before tax 7,769 9,989 28.6% 14,598 18,589 27.3%
Tax 2,488 3,114 25.2% 4,675 5,651 20.9%
Profit after tax/ (loss) 5,281 6,875 30.2% 9,923 12,938 30.4%
Net profit margin (%) 13.2% 17.2%   13.0% 16.0%  
No. of shares (m)       425.0 427.3  
Book value per share* (Rs)         344.4  
P/BV* (x)         4.9  
* Book value as on 30th September 2009

What has driven performance in 1HFY10?
  • Clearly focusing on garnering low cost deposits (current and savings accounts) through its own as well as the branches of the erstwhile Centurion Bank of Punjab (CBoP) helped HDFC Bank post a decent growth in profitability in 1HFY09. Notwithstanding the slower growth in the erstwhile CBoP assets, which was well anticipated, HDFC Bank managed to marginally outperform the banking sector in the first six months of this fiscal. The growth of 14.8% YoY in advances during the April 2009 to September 2009 period was ahead of the sector growth of 13.7% YoY. It may also be noted that the bank had 1,506 branches at the end of 1HFY10 as against 1,412 branches in 1HFY09.

  • The proportion of low cost deposits (CASA) in HDFC Bank’s books improved to 50% in 1HFY10 after having fallen to a 6-year low in FY09. The NIMs which improved by 0.1% to 4.2% are within our estimates for FY10. The bank has been under pressure for sometime to improve the CASA ratio in order to maintain its edge over other private sector and PSU banks.

    Building up on CASA…
    (Rs m) 1HFY09 % of total 1HFY10 % of total Change
    Advances 1,022,223   1,151,040   12.6%
    Retail 632,756 61.9% 686,020 59.6% 8.4%
    Corporate 389,467 38.1% 465,020 40.4% 19.4%
    Deposits 1,337,810   1,498,050   12.0%
    CASA 589,211 44.0% 754,190 50.3% 28.0%
    Term deposits 748,599 56.0% 743,860 49.7% -0.6%
    Credit deposit ratio 76.4%   76.8%    

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