(Bloomberg) – HDFC Bank Ltd. posted lower-than-expected earnings as India’s largest private lender increased reserves for bad loans and the recent coronavirus surge damaged asset quality.
Net income was Rs 77.3 billion ($ 1 billion) in the three months to June, up from 66.6 billion a year ago, the company said in a statement Saturday. This fell behind the average estimate of Rs 79.2 billion made by 15 analysts in a Bloomberg survey.
HDFC Bank is the first major lender in India to report results as the country emerges from the second wave of coronavirus, which closed businesses and resulted in the loss of millions of jobs. While the country’s most valuable bank has been less affected by the asset quality pandemic, its retail loans fell 1% in the June quarter from three months earlier, although overall growth in its loan portfolio remained robust at 14.4%. annually.
“The disruptions following the outbreak have led to a decline in lending, third-party product sales, customer use of credit and debit cards, and the effectiveness of collection efforts,” the bank said. “This could lead to a continued increase in the number of cases of default by customers and, as a result, an increase in reserves for this.”
The bank’s gross bad loan ratio in Mumbai increased to 1.47% at the end of June from 1.32% in the previous quarter.
The devastating impact of Covid-19 on business has prompted the Reserve Bank of India to extend its debt restructuring mechanism, which allows lenders to not classify some loans as non-performing until the end of 2022. This relaxation, which could be applied until the end of September, is likely to mask the true scale of problem loans in the financial sector.
HDFC Bank’s restructured portfolio stands at 80 basis points at the end of June, up from 60 basis points in March, BloombergQuint reported, citing analysts during a conference call by Jimmy Tata, chief credit officer.
HDFC Bank set aside Rs 48.3 billion in reserves in the June quarter, up from Rs 46.9 billion three months earlier and Rs 38.9 billion a year earlier.
The bank is also awaiting a decision by the Reserve Bank of India to lift the ban on new credit cards and digital product launches after the central bank punished a lender for repeated technology disruptions.
(Updates with loan restructuring in the sixth paragraph)
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