HDFC Bank (BSE 2.38 %) posted an 18% rise in March quarter earnings boosted by fee income even as it cut staff for the second straight quarter and slowed branch expansion as it exploits digital technology to reach out to customers.
The nank beat street estimates and reported a net profit of Rs 3,990.09 crore, up from Rs 3,374.2 crore a year ago. A Bloomberg poll had estimated a net profit of Rs 3,939 crore. Provisions soared 76% to Rs 1,261.8 crore from Rs 715.7 crore a quarter ago, though net bad loans remained meagre at 0.33%, up from 0.28% a year ago.
HDFC Bank is poised to grow its market share even though it would look to improve cost efficiency by reducing headcount and slowing the branch network expansion.
Its staff strength has fallen by 6,096, or 7%, to 84,325 in the quarter ended March 2017 from 90,421 in December 2016. This reduction is the highest in a quarter and at least 33% more than the 4,581 people the bank lost in the quarter ended December 2016.
“We have seen an increase in digital transactions which has given us certain efficiencies linked to the digital channel,“ said Paresh Sukthankar, deputy managing director at HDFC Bank. “We have not replaced the staff which has moved out due to attrition and have rebalanced our capabilities due to the increase in digital transactions."
As a result of the reduction in staff, total employees of the bank have now fallen to 84,325 from 87,555 in March 2016 even though the bank's network has increa sed to 4,715 branches and 12,260 ATMs in March 2017, from 4,520 branches and 12,000 ATMs in March 2016. Employee costs dropped 4% to Rs 1,553 crore in March 2017 from Rs 1,498 crore in March 2016.
“Clearly the bank is trying to improve productivity and squeeze costs. These benefits will come to the bank in the next two quarters but after that the base effect will kick in. So in other works these benefits are only short term. Ultimately the bank will have to invest to grow for which it will have to incur costs,“ said an analyst at a foreign brokerage.
Sukthankar said the bank has opened just 195 branches in the fiscal year ended March 2017 compared to an average of 300 to 400 branches in the preceding years.For example in the year ended March 2016, 506 branches and 234 ATMs were added.
“It is fair to say that we will open new branches at a slower pace and it will be at an annual rate of 200 or lower rather than the average we saw earlier. Our people needs will also be lower due to the transaction efficiencies so it's also fair to say that our employee count will be around current levels or lower and not grow at the pace it was growing earlier,“ Sukthankar said.
Better cost efficiencies have allowed the bank to reduce its cost to income ratio to 44.50% in March 2017 from around 46% in March 2015 supporting profitability as the pace of profit growth has fallen from 30% a few years ago to less than 20% currently .
The bank's growth remained unaffected by the fall in headcount. Its loan book grew 19.4% and retail and wholesale assets continued to grow much faster than system loan growth. Domestic retail loans grew 26.6% while wholesale loans grew 20.7%. Within retail, personal loans and credit card continued to drive growth with over 34% and 27% growth, respectively . The bank also declared a dividend of Rs 11 per share as against Rs 9.50 in the previous year.
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