India’s largest private lender HDFC Bank witnessed a contraction in margins as it focussed on higher-rated borrowers through the pandemic, moving away from unsecured loans, a senior official told analysts on Saturday.
“Our asset mix has shifted towards higher-rated segments during the covid-19 period, albeit at lower yields," said Srinivasan Vaidyanathan, chief financial officer, HDFC Bank.
As a result, Vaidyanathan said, net interest income (NII) growth has been lower but has been accompanied by a corresponding offset in credit costs, lower than the historical average. The bank’s net interest income – the difference between interest earned and interest expended – grew 10.2% y-o-y to ₹18,872.7 crore.
Its net interest margin (NIM) – a key measure of profitability – stood at 4% in Q4 FY22, down from 4.1% in Q3 and 4.2% in the March quarter of FY21. Vaidyanathan told analysts that through the pandemic the bank saw that retail credit growth was going down and growth was picking up in wholesale and commercial banking.
“If you go back to 2019, wholesale was 45% and retail was close to 55%. Now things have reversed. Retail is 45% and wholesale is 55%," he said, adding that the lender has “traded off" net interest margin to operating cost and credit cost.
The bank’s total advances were at ₹13.68 trillion in Q4 of FY22, an increase of 21% over the same period last year. Its retail loans grew 15.2%, and corporate and other wholesale loans grew 17.4%, it said. Overseas advances constituted 3.1% of total advances.
“Our market share in advances has improved from 10% to 11% during the year. Our incremental share of credit growth in the economy was at 24%. We have demonstrated in the past that our rate of growth is not inhibited by our market share," he said.
He said that supply chain issues have impacted the bank’s vehicle finance business.
“If you look outside the vehicle segment and the cards, retail currently is powering at a sequential momentum of about 6% or so. We do believe that the vehicle (loans) should come back once the supply constraints abate. For the good part, it is coming back," he said.
Meanwhile, Vaidyanathan said the bank has issued 820,000 credit cards in the March quarter and 2.18 million cards since the lifting of the embargo. In December 2020, RBI had asked the private sector lender to halt launches under its digital banking initiative and to stop sourcing any new credit card customers, albeit temporarily. The regulatory action came after multiple outages in the bank’s e-banking channels. Then in August 2021, RBI partially lifted the restrictions, allowing it to resume issuing credit cards, while the bank was allowed to resume digital banking launches in March this year.
