Solid HDFC Bank creates bad loan scare for investors
Normally, a spike of 15 bps in gross NPAs from 1.32% to 1.47% would be considered normal for banks anywhere in the world. Not so; for India’s most valuable bank, HDFC Bank. When HDFC Bank announced its quarterly results on 17 July, profit growth and revenue growth were taken for granted. What caught the eye was the 15 bps sequential expansion in gross NPAs.
There were some numbers that really worried the market on the loan quality front. For example, HDFC Bank wrote off Rs.3,100 crore of NPAs in the Jun-21 quarter against just Rs.1,500 crore in the Jun-20 quarter. Gross NPAs at 1.47% were higher than 1.36% in Jun-20 quarter and 1.32% in Mar-21 quarter. The restructured loan book (largely retail) went up from 0.6% in the Mar-21 quarter to 0.8% in the Jun-21 quarter.
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HDFC Bank has offered an explanation for this spike in gross NPAs. According to the bank, COVID 2.0 put restrictions on the bank officials going out to clients for collections. This led to higher NPAs, and this is not expected to be a constraint in the next quarter. However, pressure on the retail book is a reality, albeit minimal.
Over the last 15 years, HDFC Bank built a reputation for rigorous credit appraisal and close credit monitoring. That helped them keep NPAs in check. On 19 July, HDFC Bank stock opened as the top loser in the Nifty. Markets are worried that if COVID 2.0 can hit HDFC Bank, other large banks are unlikely to be spared. Numerically, gross NPAs of HDFC Bank are still very comfortable, but the challenge for HDFC Bank is living up to its credit reputation, amidst its burgeoning asset book.
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