HDFC Bank's third quarter 2016 earnings grew 20% and were broadly on track with our estimates. Net interest income grew 24% aided by strong loan growth of 26%, several notches ahead of the 11% system credit growth. Personal loans, home loans and agriculture loans for the bank have grown at more than 40% each for the bank and together account for nearly 39% of its loan book.
The bank continues to maintain impeccable loan book quality despite this neck-breaking speed of loan disbursements, reaffirming its Exemplary stewardship of capital.
Unlike Axis Bank and ICICI Bank which recognized additional provisions and bad loans with the recent review on nonperforming assets by the Reserve Bank of India, HDFC Bank did not need to recognize additional stressed assets given its already prudent loan loss recognition policy.
Gross nonperforming assets for the bank moved by a modest 6 basis points over second-quarter to 0.97% and still below our 1.5% threshold for high-quality banks.
We urge investors to take the opportunity to invest in this high quality name on this rare occasion when this narrow moat stock is trading at a 7% discount to our Rs 1,130 fair value estimate.
On the ADR front, however, the shares continue to trade at a 15% premium to our DCF-driven USD 50 per ADR fair value, which we have adjusted down by 4% to account for an exchange rate movement of USD/INR to 68 from 66. This 20% odd market price disparity is common between ADR and underlying Indian-listed shares, as HDFC Bank is the darling of foreign investors.
The bank continues to grow its branch presence and has added 622 new branches in the last 12 months. This additional physical footprint will help HDFC Bank in lead generation from these branches, and garner further share from its peers in our opinion.
