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Loan waivers trip HDFC Bank asset quality as profit rises 20.2%

25 July 2017

The peril called higher provisioning and bad loans extended to HDFC Bank, which until now remained largely unscathed.On Monday, the private-sector lender reported an enviable 20.2 per cent rise in net profit at Rs 3,894 crore for the quarter ended June 2017, but disappointed investors posting its highest non-performing asset (NPA) ratio in years, courtesy farm loan waivers.

Four key states including Uttar Pradesh, which has a population around the same size as Brazil's, have recently said they would waive off billions of dollars in farm loans to offer relief to farmers reeling from losses caused by bad weather.

Total income of the bank rose to Rs 1,790.53 crore in April-June 2017, from Rs 1,789.05 crore in the year ago period, the bank said in a regulatory filing.

The bank's gross non-performing assets (as a percentage of gross advances) in improved to 10.79%, against 11.20% for the quarter ended March 2017 (Q4FY17).

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HDFC Bank stock closed 1.83% higher at Rs 1734.55 on the BSE. The general provisions also include Rs 121 crore set aside towards agriculture loans.

"We believe that a fair portion of this impact does reflect changed customer behaviour in anticipation of loan waivers which were announced", the bank's deputy managing director, Paresh Sukthankar, told reporters at a briefing after the company posted a 20 percent rise in its quarterly profit.

The higher bad loans had the bank making higher provisions which nearly doubled, which led it miss the street estimate on the bottomline. Agri loans, where its total exposure is Rs 28,000 crore and meeting the 18 per cent mandatory priority sector lending requirement to the sector, resulted in a 0.13 per cent spike in NPAs. Despite a mere 6.1% year-on-year growth in banking industry loans, the bank's loan book grew by 23.4% over the previous year and 4.8% over the preceding quarter, led by higher growth in corporate, business banking and retail loan segments.

Loan waivers trip HDFC Bank asset quality as profit rises 20.2%