Two leading private banks – HDFC Bank and Kotak Mahindra – kicked off the earnings season with decent profits, but with a marginal increase in bad loans too. The results of these banks, which are considered among the best lenders in terms of asset quality, are seen as a pointer to rising delinquencies in small businesses.

HDFC Bank has reported a net profit of Rs 3,239 crore for the quarter ended June 2016 – an increase of 20.2% over Rs 2,658 crore in the corresponding quarter last year. Profits were driven by a growth in retail business including home loans. However, the bank’s gross non-performing assets (NPAs) increased marginally from 0.94% to 1.04%.

Kotak Mahindra Bank, which became the third most valuable private bank after acquiring ING Vysya, saw its net profit grow fourfold to Rs 742 crore for the quarter ended June 2016 as compared to Rs 190 crore in the corresponding quarter last year. However, the previous year’s numbers are not comparable as, since then, ING Vysya Bank has merged with Kotak Bank.

Asset quality worsened during the quarter with the bank’s gross NPAs rising to Rs 3,058 crore (2.5%) from Rs 2,421 crore (2.3%) in the corresponding quarter last year. The bank’s share price fell nearly 3% to Rs 761 following the results.

HDFC MD and CEO Aditya Puri, however, played down the increase in bad loans. “The few basis points increase in NPAs is nothing to worry about,” said Puri. Responding to a question, he said that the bank did not have exposure to stressed steel makers, else the NPA level would have been higher.

Puri also said that the bank has a succession plan in place. “I have more than two years but we do have a clear succession plan. There are successors at two-three levels below me.”

The bank’s deputy MD Paresh Sukthankar said the SME segment had seen an increase in defaults. The bank has also made provisions for the loans to Punjab state for food procurement. Earlier this year, the central bank had asked lenders to make provisions for a Rs 26,000-crore loan extended to the state after food grains went missing.

Kotak Bank, too, reported stress in small businesses. “We are seeing marginal increase in stress in SMEs. Until now, you were seeing stress in the large corporates. Now, you are seeing some of that reflect in the SMEs, although it is not significant,” said Dipak Gupta, joint MD, Kotak Bank.

But despite the marginal increase in bad loans, private banks like HDFC Bank and Kotak are expected to increase market share as public sector banks face pressure on account of bad loans and capital adequacy. A report by Jefferies earlier this month said that it expects HDFC Bank to continue to increase market share on the back of its strong capital position.

Source: Times Of India

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