Mumbai, July 24: HDFC Bank today reported its highest bad loan ratio in recent years as the rash of farm loan waivers in some states affected repayments in its agricultural portfolio.
The country's second largest private sector bank, however, posted a 20 per cent jump in net profit for the first quarter ended June 30, 2017, in line with Street estimates.
The tendency among farmers to stop repayments saw the bank - known for its strong asset quality - reporting a gross NPA ratio of 1.24 per cent of the advances as on June 30, up from 1.05 per cent on March 31 and 1.04 per cent in the same period last year.
Of the total increase in the gross NPAs, 60 per cent was in the agricultural segment in the first quarter.
"Recoveries from agricultural advances were impacted during the quarter by borrower expectations of farm loan waivers arising out of policy announcements in certain states. These loan waiver policies are in the process of being finalised and implemented," HDFC Bank added.
In absolute terms, the gross NPAs stood at Rs 7,242.93 crore against Rs 5,885.66 crore in the preceding quarter and Rs 4,920.89 crore in the year-ago period.
With the rise in bad loans, provisions almost doubled year-on-year. Total provisions increased to Rs 1,558.76 crore in the June quarter from Rs 866.73 crore in the same period last year.
In farm loans, HDFC Bank's total exposure is Rs 28,000 crore. The higher provision included Rs 121 crore set aside for its exposure to potentially vulnerable sectors, even if it is standard.
"Almost 60 per cent of fresh slippages have come from the agricultural portfolio. A fair portion does reflect the changed customer behaviour in anticipation of the loan waivers that were announced. But something like this in a year when otherwise the harvest has been good is out of our control," the bank's deputy managing director Paresh Sukhtankar told reporters today.
In recent months, states such as Uttar Pradesh, Maharashtra, Punjab, Karnataka and Tamil Nadu have made farm loan waiver announcements. The move has been criticised by the RBI as it affects the credit culture and hurts the intention of borrowers to repay.
Despite HDFC Bank's rise in NPAs during the quarter, analysts are not worried.
"A marginal increase in the gross NPA is not a worry as the headline NPA and provision coverage ratio (PCR) of the bank continue to remain best in class in the industry," said Asutosh Kumar Mishra, senior research analyst (banking and financials) of Reliance Securities.
The bank's net profit of Rs 3,894 crore in the June quarter came on the back of a 0.4 per cent rise in net interest income (interest earned minus interest paid) at Rs 9,370.7 crore against Rs 7,781.4 crore last year. The other income grew 25.3 per cent to Rs 3,516.7 crore, helped largely by a 30 per cent growth in fees and commissions.
The HDFC Bank stock rose 2.03 per cent to close at Rs 1,738 on the BSE today.
