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HDB Financial Services reports 17% drop in net profit in March quarter

HDB Financial Services (HDB) the non-banking finance company (NBFC) subsidiary of HDFC Bank reported a 17% drop in net profit in the quarter ended March 2021 due to higher provisions indicating the challenging economic environment facing the company which focuses on the risky unsecured personal loans, new to credit loans consumer durable loans, used car loans, credit card balance transfer and loans to small enterprises.

Net profit fell to Rs 285 crore in March 2021 from Rs 342 crore a year ago due to a rise in provisions. Total provisions increased to Rs 613 crore from Rs 393 crore a year earlier.

TheThe challenging macro economic environment was also reflected in HDFC Bank’s results which though registering a 18% growth in net profit, reported check an increase in cheque bounce rates in April to near January levels after an improvement to pre Covid levels in the last two months, especially in states like Maharashtra, Madhya Pradesh, Punjab and Telangana which have reported localised lockdowns to control the spread of infections.

However, HDB could arrest the deterioration in asset quality during the quarter as gross NPA at the end of March 2021 was 3.9% down from the reported proforma NPA of 5.9% as of December 2020.

Analysts said the company has been able to arrest the slide in asset quality after a deteriation in the nine months of the fiscal. Gross NPAs had increased to 5.9% in December from 5.1% in September 2020.

“The reduction in HDBs NPAs could be because the company has written off a huge amount of bad loans during the quarter or has been sucessful in stepping up the recovery of loans. There has been no major increase in the company’s loan book so a reduction in NPAs is unlikely due to a strong expansion in the loan book,” said Lalitabh Srivastawa, analyst at Sharekhan, a brokerage arm of BNP Paribas.

HDFC Bank did not reply to an email seeking comment on the reasons for the fall in HDB’s NPAs.

The bank holds a 95.1% stake in HDB.

HDB’s recorded a modest 5% increase in its loan book to Rs 58,947 cr from Rs 55,930 cr a year ago. Net interest income grew 15% to Rs 1,252 cr from Rs 1,084.5 cr a year ago.

Net profit for the fiscal ended March 2020 halved to Rs 503 cr from Rs 1,037 cr a year earlier.

HDB has a liquidity coverage ratio (LCR) of 265% and capital adequacy of 19% higher than the 15% required by regulations. HDB had 1,319 branches across 959 cities and towns in India.

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