India’s HDFC Bank sees margins drop, bad loans rise post $40 billion merger

MUMBAI (Reuters) -India’s HDFC Bank reported a sharp sequential drop in its lending margin and an increase in bad loans for the second quarter as it reported results as a single company for the first time since merging with parent Housing Development Finance Corp (HDFC).

HDFC Bank merged with HDFC on July 1 in a $40 billion deal to better tap rising demand for credit.

Net interest margin at India’s largest private lender fell to 3.4% on all assets and 3.6% on interest-earning ones. Net interest margin (NIM) came in at 4.1% in the June quarter.

Organically, the merger of two entities would have translated into margins of 3.6%-3.7%, but additional liquidity held ahead of the merger resulted in a hit of 30-35 basis points, the bank’s chief financial officer Srinivasan Vaidyanathan said in a conference call with media.

Vaidyanathan did not say what margins would be in the next few quarters.

Net profit, not including its subsidiaries, stood at 159.76 billion rupees ($1.92 billion) for the quarter ended September. The numbers are not comparable to a year ago, when the lender and parent HDFC operated as separate firms.

Net interest income, or core lending income, stood at 273.85 billion rupees.

The bank’s gross non-performing assets (NPA) ratio rose to 1.34%, which included the impact of 45-50 billion rupees in loans restructured from the HDFC loan book. These restructured loans were categorised as non-performing as per current regulations, Vaidyanathan said.

The bank’s gross NPA ratio was 1.17% in the fiscal first quarter prior to the merger.

The gross NPA ratio was lower than the 1.41% for the combined entity on a pro forma basis at the end of the June quarter, the bank said. The bank has provided adequately for stressed loans and net bad loans, after provisions, rose 5 basis points to 0.35%.

Gross loans were at 23.55 trillion rupees, up 4.9% from the previous quarter on a like-to-like basis, the lender said. Post the merger, retail loans form 55% of the loan book.

However, the credit environment in the country is “benign” and the bank will continue to grow at a pace higher than the broader industry, Vaidyanathan said.

Deposits aggregated to about 21.73 trillion rupees at the end of September, a 5.3% increase from June end on a comparable basis.

($1 = 83.2510 Indian rupees)

(Reporting by Siddhi Nayak; Editing by Dhanya Ann Thoppil and Nivedita Bhattacharjee)