2009: The year that was for HDFC Bank

Year 2009 was a watershed year for the Indian banking sector: Most banks were seen reducing interest rates on loans, while many were shying away from risky corporate accounts in light of global financial crisis.

But still, most banks' performance was commendable and profit figures were admirable, given the fact that most foreign banks, especially in the United States, were closing down.

In a series on how some of the top banks in India performed during the Year 2009 and how they are positioned for the coming year, we covered ICICI Bank on Tuesday. Today we bring to you the details on HDFC Bank. Read on.

Year 2009 for HDFC Bank

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalisation of the Indian Banking Industry in 1994. HDFC Bank was incorporated in August 1994, and, currently has a nationwide network of 1,506 branches and 3,573 ATMs in 635 Indian towns and cities.

Stock Market Listings

The shares are listed on the Bombay Stock Exchange and the National Stock Exchange. The bank's American Depository Shares (ADS) are listed on the New York Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's Global Depository Receipts (GDRs) are listed on Luxembourg Stock Exchange.

The HDFC Group holds 19.38 per cent of the bank's equity and about 17.70 per cent of the equity is held by the ADS Depository (in respect of the bank's ADS issue).

27.69 per cent of the equity is held by Foreign Institutional Investors (FIIs) and the bank has about 5,48,774 shareholders.

International Operations

HDFC Bank planned to set up a branch at Hong Kong and has already applied with the international authorities after receiving permission from the RBI. "We are planning our first-ever international foray with a branch in Hong Kong shortly and we have already received RBI's approval and now clearance is awaited from the overseas authorities," a highly placed bank official told PTI recently.

HDFC Bank's profit after tax for the quarter ended September 30, 2009 stood at Rs 1,293.57 crore (Rs 12.93 billion), a sequential increase of 30.3 per cent against Rs 992.33 crore (Rs 9.92 billion) in the same quarter last year.

The bank has indicated that its loan growth at the end of the year will be above 20 per cent.

However, the bank's interest income did not grow as much because most of the loans were provided to safe corporate. Similar to other private leading banks, HDFC bank has been going slow on the riskier personal loans segment (which provides higher income).

The increase in profit is primarily due to treasury gains and a rise in fee income.

Loans prospect at HDFC Bank

Despite a jump in credit growth, the bank did not record a any rise in interest income due to falling interest rates on loans.

Meanwhile, net interest income rose marginally by around 5 per cent to Rs 1,955 crore (Rs 19.55 billion) from Rs 1,867 crore (Rs 18.67 billion) as the bank increased the share of low-cost deposits. Its net interest margins were stable at 4.2 per cent.

A big positive was high growth in the low-cost current and savings account (CASA) deposits, which now form 47 per cent of total deposits. The loan growth for the second quarter has been higher at Rs 9,000 crore (Rs 90 billion) against Rs 5,000 crore (Rs 50 billion) in the first quarter. The advances at the end of the first quarter were at Rs 1,15,104 crores (Rs 1,151 billion).

The bank is one of the few who continued to grow their retail lending book even after the financial crisis. However, the growth rate has come down and officials say they will be cautious in their lending to the unsecured retail loan portfolio of credit cards and personal loans. The unsecured loan portfolio, which was at 12 per cent of the loan portfolio last year, has fallen to 10.5 per cent this year.

In the retail segment, the bank is now focusing on auto and home loans, to a lesser degree on business loans, loans against securities and two wheeler loans.

The above changes in the loan portfolio have helped the bank to reduce NPA (Non-performing Assets) to 1.8 per cent from 2.1 per cent.

Income from treasury & non-core income

HDFC Bank has seen its strong non-core income growth pushing revenues higher. The non-core income rose to Rs 1,007.4 crore (Rs 10.07 billion). In non-interest revenue, the bank's income from fees and commissions was Rs 692.4 crore (Rs 6.92 billion), up 17.9 per cent over the quarter ended September 30, 2008.

Treasury trading gain was at Rs 162.9 crore (Rs 1.62 billion), and was substantially higher than the year-ago quarter but 36 per cent lower than in the June quarter due to hardening of bond yields in September.

Expenses are under control

Even as the bank hired 2,000 employees last quarter, there was a marginal dip in employee expenses as temporary staff was cut down to minimal.

HDFC plans to keep the cost-to-income ratio around the current level despite its plans to add another 100 branches in the second half.

Statutory needs met comfortably

The bank's capital adequacy ratio (CAR) on September 30 was 15.7 per cent, with Tier-I CAR at 10.9 per cent. However, the bank's CAR is expected to cross the 17 per cent mark before the end of the year, when Rs 4,000 crore (Rs 40 billion) of warrants issued to its promoter, HDFC, are converted into equity shares.

Performance of Subsidiaries

HDFC Standard Life Insurance

The life insurance subsidiary of HDFC Bank is yet to make profits. It is expected that the unit will start generating profit in the year 2013.

Due to tighter cost controls, the additional capital infusion in to the unit during the year was reduced to Rs 250 crore (Rs 2.50 billion) compared to the planned Rs 350 crore (Rs 3.50 billion).

HDFC Realty

HDFC's holding in the website, which has a comprehensive listing of properties in many cities of India, has been increased to 100 per cent. Earlier the company had a partnership with Mahindra & Mahindra Ltd (M&M). Currently properties in Bengaluru, Chennai, Coimbatore, Kochi, Kolkata, Mumbai, Nasik, Pune and Thiruvananthapuram are listed on the website.

The Bank has its deposit programs rated by two rating agencies-- Credit Analysis & Research Limited (CARE) and Fitch Ratings India Private Limited. Both the agencies have given their highest ratings to the bank's deposits.

The bank was one of the first four companies who subjected themselves to a Corporate Governance and Value Creation (GVC) rating by the rating agency, The Credit Rating Information Services of India Limited (CRISIL). The rating provides an independent assessment of an entity's current performance and an expectation on its "balanced value creation and corporate governance practices" in future.

The bank has been assigned a 'CRISIL GVC Level 1' rating which indicates that the bank's capability with respect to wealth creation for all its stakeholders while adopting sound corporate governance practices is the highest.

The year ahead for HDFC Bank

The year 2009 has been a year of belt tightening for HDFC Bank. The bank is working more efficiently, focusing on cost reduction in operations and in employees cost. The loans book is much healthier with the proportion of secured loans and corporate loans becoming higher.

The spirit to subject itself to a difficult Corporate Governance rating shows the high management quality of the bank. HDFC Bank will enter 2010 with a lot of strengths.