HDFC Bank on Tuesday reported a mere 15.1% year-on-year (y-o-y) growth in net profit for the quarter ended December 2016 to Rs 3,865.33 crore— lowest in at least 14 years— as the running off of overseas loans linked to around $3 billion worth of FCNR deposits coincided with a slowdown in earnings as a result of the demonetisation of high-value currency notes.
The bank’s net interest income, or the difference between interest earned and interest expended, rose 17.6% y-o-y to Rs 8,309.09 crore. Its total income, however, grew at a slower 13.5% to R20,748.27 crore as the bank lost out on a chunk of fee income because of the government’s decision to waive charges on ATM and point-of-sale transactions in the wake of demonetisation.
Paresh Sukthankar, deputy managing director at the bank, said, “Clearly, the transaction volumes increased and, therefore, there would have been a further potential gain. But not only was that potential not there because you were charging zero, but even what your normal earnings from these revenue lines or these products would have been had been zeroised. So that would have reflected in the commission fees and the commission growth, which dropped to about 10%.”
He refused to disclose the amount of fee income foregone as a result of the government directive. Net interest margin fell marginally to 4.1% from 4.2% at the end of September.
Demonetisation also hit interest income in segments such as SME lending, which saw higher prepayments than usual. “More than loans, these are the cash credit limits and so on, as the working capital requirements or the cash which was being held by SMEs for their regular business requirements, was deposited back in their cash credit limits. That saw a prepayment or a repayment of some amount of loans, which will probably get drawn down as their business needs increase and businesses normalise,” Sukthankar said.
Overall advances grew by around 13.5% during the quarter to Rs 4,95,000 crore. This includes the impact of the running off of overseas loans worth about $2 billion. Domestic advances grew 17.5% y-o-y to Rs 4,77,415 crore, as against a growth of 25.7% registered in the December 2015 quarter. Apart from thinning in the working capital needs of SMEs, the figure reflected the slowdown in demand for loans in categories such as two-wheelers, where demand for the underlying itself suffered as a result of demonetisation.