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HDFC Bank’s latest financial results, while showcasing a stronger-than-expected net profit, also revealed a decline in asset quality and a reduction in the key metric, net interest margin (NIM), on a sequential basis. India’s largest private sector bank reported a remarkable 50.6% growth in net profits for the quarter ending September 30, reaching Rs 15,976 crore, compared to Rs 10,605.78 crore a year ago. On a sequential basis, net profit saw a robust increase of nearly 34%. Brokerage firms had predicted a net profit growth ranging from 40% to 45%.

It’s worth noting that this marked the first quarterly report following the reverse merger with its parent company, HDFC, which occurred on July 1 in a $40 billion deal aimed at capitalizing on the growing demand for credit. The impressive rise in profits was primarily attributed to a substantial 30.3% increase in core income or net interest income (NII), which surged to Rs 27,385 crore from Rs 21,021 crore in the corresponding period last year. However, net interest margins, which represent the difference between interest income and interest paid in relation to interest-earning assets, declined on a sequential basis from 4.1% to 3.4%.

During an earnings call, Srinivasan Vaidyana-than, Chief Financial Officer of HDFC Bank, explained that one contributing factor to the decline in NIM was the imposition of the incremental cash reserve ratio (I-CRR) by the Reserve Bank of India (RBI) on all banks. Meanwhile, the bank’s asset quality suffered a setback as the percentage of gross non-performing assets (NPAs) increased to 1.34% from 1.17% in the April-June period.

On the deposit front, the bank saw a substantial 29.8% growth, with deposits increasing by Rs 1.1 lakh crore on an annual basis, reaching Rs 21.72 lakh crore. Notably, low-cost CASA (current account and saving account) deposits grew by 7.6%, with savings account deposits at Rs 5.69 lakh crore and current account deposits at Rs 2.47 lakh crore. Time deposits also saw a significant increase, rising by 48.3% to reach Rs 13.55 lakh crore.

Regarding its assets, gross advances for the quarter amounted to Rs 23.5 lakh crore, reflecting a substantial 57.7% increase compared to the same period the previous year. The retail segment of its loan portfolio exhibited impressive growth at 112.1%, while commercial and rural banking loans grew by 29.5%, and corporate and other wholesale loans increased by almost 8%.

In a related development, private sector lender Federal Bank reported a notable 36% increase in its consolidated net profit for the September quarter, amounting to Rs 994 crore. This growth was attributed to a significant decrease in provisions. The bank also recorded a 17% increase in core net interest income, which reached Rs 2,056 crore for the quarter, supported by a 20% growth in advances and a slight expansion in the net interest margin, which reached 3.16%. Overall provisions on a standalone basis declined to Rs 43.9 crore compared to Rs 267.86 crore in the year-ago period, primarily due to a substantial reduction in the allocation for potential loan losses, which decreased to Rs 61 crore from Rs 205 crore.

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