HDFC Bank Limited: Form 6-K Summary
Business Context and Reporting Period
This Form 6-K filing by HDFC Bank Limited, a foreign private issuer, reports financial results for the six-month period ended September 30, 2018. The filing was submitted on March 15, 2019. The financial statements are prepared in accordance with US GAAP. Effective April 1, 2018, the Bank adopted several new accounting standards (including ASU 2016-01, ASU 2016-18, and ASU 2017-07), resulting in retrospective revisions to prior period amounts and changes in the presentation of cash flows and equity.
Key Financial Metrics
| Metric | Six Months Ended Sept 30, 2018 (Rs. Millions) | Six Months Ended Sept 30, 2017 (Rs. Millions) |
|---|---|---|
| Total Revenue, Net | 273,217.4 | 235,891.4 |
| Net Interest Revenue | 237,701.6 | 200,797.3 |
| Non-Interest Revenue, Net | 72,370.1 | 67,311.9 |
| Provision for Credit Losses | 36,854.3 | 32,217.8 |
| Net Income (Attributable to HDFC Bank) | 100,627.1 | 79,466.8 |
| Earnings Per Share (Basic) | Rs. 38.11 | Rs. 30.90 |
| Total Assets (as of Sept 30, 2018) | 12,357,250.6 | 11,367,308.8 (as of Mar 31, 2018) |
| Total Deposits (as of Sept 30, 2018) | 8,328,964.8 | 7,883,751.5 (as of Mar 31, 2018) |
| Shareholders' Equity (as of Sept 30, 2018) | 1,461,940.0 | 1,176,493.3 (as of Mar 31, 2018) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased by approximately 15.8% year-over-year, driven by a 18.4% increase in net interest revenue and a 7.5% increase in non-interest revenue.
- Profitability: Net income attributable to HDFC Bank Limited rose by 26.6% to Rs. 100.6 billion. Income before tax increased by 24.7% to Rs. 155.2 billion.
- Asset Quality: The provision for credit losses increased by 14.4% to Rs. 36.9 billion. Gross impaired loans increased from Rs. 108.7 billion (March 31, 2018) to Rs. 124.6 billion (September 30, 2018).
- Balance Sheet Expansion: Total assets grew by Rs. 990 billion (8.7%) from the prior fiscal year-end. Loans increased by Rs. 875 billion, while total deposits grew by Rs. 445 billion.
- Equity Capital: Shareholders' equity increased significantly due to a public offering of equity shares (Rs. 235.9 billion proceeds) and retained earnings. Outstanding equity shares increased from 2.595 billion to 2.717 billion.
Outlook, Risks, and Contingencies
- Accounting Changes: The adoption of ASU 2016-01 eliminated the "Available-for-Sale" category for equity securities, reclassifying them to other assets with fair value changes recognized in net income. ASU 2016-18 reclassified restricted cash into cash and cash equivalents.
- Future Standards: The Bank expects to adopt ASU 2016-02 (Leases) in fiscal 2020 and ASU 2016-13 (Credit Losses/CECL) in fiscal 2021. The CECL adoption is expected to increase the allowance for credit losses.
- Contingencies: The Bank is party to various legal proceedings, primarily regarding indirect taxes. Claims aggregated to Rs. 8.8 billion as of September 30, 2018. Management believes the likelihood of these becoming obligations is remote and does not expect a material adverse effect.
- Commitments: Outstanding undrawn commitments to provide loans were Rs. 432.2 billion. Unconditional cancellable commitments were Rs. 2.96 trillion. Future minimum lease payments total Rs. 79.6 billion.
- Derivatives: The Bank holds significant derivative positions (notional value Rs. 9.5 trillion) for hedging and trading. Net fair value of derivatives was a positive asset of Rs. 11.3 billion as of September 30, 2018.
Investor Verification Checklist
- Asset Quality Trends: Verify the trajectory of impaired loans (Rs. 124.6 billion) and the adequacy of the allowance for credit losses (Rs. 130.9 billion) given the increase in provisions.
- Capital Adequacy: Confirm the impact of the recent equity issuance on capital ratios and the Bank's ability to sustain dividend payouts (Rs. 40.8 billion paid in the period).
- Non-Interest Revenue Volatility: Review the composition of non-interest revenue, noting the significant foreign exchange loss of Rs. 10.5 billion offset by derivative gains of Rs. 17.5 billion.
- Accounting Transition Impact: Assess the long-term impact of the upcoming CECL (ASU 2016-13) adoption on future earnings and allowance levels.
- Legal Exposure: Monitor the status of indirect tax litigation claims totaling Rs. 8.8 billion.