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Aditya Puri’s succession plans; HDFC Bank warns of rise in NPAs & other Q1 takeaways

Leading private lender HDFC Bank on Saturday said the ongoing slowdown may lead to a rise in the number of customer defaults and consequently an increase in provisions.

While announcing its June quarter results, the lender said. “Continued slowdown in economic activity has led to a decrease in loan originations, the sale of third party products, the use of credit and debit cards by customers, the efficiency in collection efforts and waiver of certain fees.”

However, the bank managed to report better-than-expected financial results amid the ongoing uncertainty due to Covid-19 pandemic.

Later in the evening, Aditya Puri, MD and CEO, HDFC Bank also gave hints about an internal successor at the bank’s annual general meeting.

Here are the key takeaways from Q1 earnings:

Dip in expenses supported profit
The lender posted nearly 20 per cent growth in standalone net profit at Rs 6,658.62 crore for the June quarter of the current financial year due to fall in operating expenses. It had clocked a net profit of Rs 5,568.16 crore in April-June last year.

Operating expenses declined 2.19 per cent YoY to Rs 6,911.5 crore in Q1FY21. The cost-to-income ratio for the quarter was at 35 per cent as against 39 per cent for the corresponding quarter ended June 30, 2019.“Operating expenses were lower primarily due to lower loan origination and sales volumes,” HDFC Bank said in a release.

Expert take
Rajiv Mehta, Lead Analyst–Institutional Equities at YES Securities said earnings and PPOP best their estimates. “Such resilient performance is highly comforting, however, we would be closely monitoring moratorium data, management’s recent assessment of Covid impact and management transition,” he said.

Pre-provision operating profit (PPOP) grew 15.10 per cent YoY to Rs 12,829.3 crore. Puri said, “Lot of people have paid under moratorium one and some rolled over to the second. As much as 2.9 per cent of customers have opted for the moratorium 2.”

Covid-19 related provisions
The company reported 48.89 per cent YoY and 2.82 per cent QoQ rise in provisions and contingencies at Rs 3,891.5 crore. Total provisions for the current quarter included contingent provisions of approximately Rs 1,000 crore. “The bank holds provisions as at June 30 against the potential impact of Covid-19 based on the information available at this point in time. The provisions held by the bank are in excess of the RBI prescribed norms,” HDFC said, adding total provisions were 149 per cent of the gross non-performing loans as on June 30.

Advances and deposits
Total deposits increased by 24.60 per cent YoY to Rs 1,189,387 crore, while advances grew by 20.90 per cent YoY to Rs 1,003,299 crore. CASA deposits witnessed a rise of 26 per cent with savings account deposits at Rs 327,358 crore and current account deposits at Rs 150,077 crore.

Aditya Puri’s succession plan
Puri said our potential successor has been with us for 25 years. “My successor was always in place at least in my mind. It is now for RBI to decide what was been given to them,” he said.

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