HDFC Bank Q1 net up 31 pct on treasury income
* Loan growth slows sharply, expected to remain muted
* Hardening yields likely to hit treasury income
MUMBAI, July 14 (Reuters) - India's HDFC Bank (HDBK.BO) posted a better-than-expected 31 percent rise in quarterly net profit, thanks to a surge in bond trading income as loan growth was sluggish, but hardening yields could pose a threat in coming quarters.
Treasury income, primarily from trading in bonds, soared more than nine times in the June quarter from a year earlier, the second-largest private sector lender said.
"Treasury income is unlikely to come in handy this quarter. bond yields are not favourable and could harden further," Vaibhav Agrawal, analyst at Angel Broking said.
Yields on the benchmark 10 year bonds have risen from 6.13 percent in late April to 7 percent, driven by a record high government borrowing plan.
As bond prices move inversely to yields, the drop in prices will erode the value of banks' holding.
The government has said it plans to borrow 4.51 trillion rupees ($92 billion) in the fiscal year ending in March 2010 to bridge a 16-year high fiscal deficit of 6.8 percent.
HDFC Bank (HDB.N) said net profit grew to 6.06 billion rupees
($124 million) in the three months ended June from 4.64 billion rupees a year earlier and beating the 5.9 billion forecast by 10 analysts in a Reuters poll.
It was the 29th consecutive quarter when earnings had grown at least 30 percent, the bank said. Total income rose 21.9 percent to 51.37 billion rupees from 42.15 billion, while treasury income income jumped to 4.04 billion from 435 million.
Loans grew a paltry 7.7 percent in the quarter, sharply lower than 30 percent a year earlier. Indian banks loan growth INLOAN=ECI has fallen to about 15 percent from 30 percent seen in the previous three fiscal years as an economic slowdown crimped demand. The growth is largely powered by food credit.
On Monday, the chairman of State Bank of India (SBI.BO), the country's top lender, said the bank had seen a marginal loan growth in the June quarter over January-March. [nBOM498316]
Gross bad loans rose to 2.05 percent of total advances from 1.54 percent a year earlier, HDFC Bank said. Analysts said this should stabilise in the next two quarters as loan growth revives.
By 0918 GMT, shares in HDFC Bank, which the market values at $12 billion, fell 1.7 in a firm Mumbai market. The shares have risen 38 percent so far this year compared to the 43 percent rise in the benchmark .BSESN.
($1=48.9 rupees)
(Reporting by Narayanan Somasundaram; Editing by Ranjit Gangadharan)
((narayanan.somasundaram@thomsonreuters.com; 91 22 6636 9068; Reuters Messaging narayanan.somasundaram.reuters.com@reuters.net))
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