Two India bank ADRs, HDFC Bank ( HDB) and ICICI Bank ( IBN), announced their March-quarter earnings this past week.

HDFC bank has reported a 32.6% year-over-year increase in its quarterly profit, beating analyst estimates, on the back of a strong recovery in credit demand in India. ICICI Bank posted its best quarterly profit growth in two years, benefiting from the increase in fee income and reduction in operational costs.

However, ICICI earnings fell short of consensus estimates and the contraction in loan book disappointed investors. Both banks reported an improvement in their asset quality, boosted by the strong economic growth that reduced the pace of loan defaults.

As Asia's third-largest economy is expected to grow more than 8% for fiscal year 2011, as estimated by the central bank, we expect loan demand to improve further on the back of business expansions. From the trough of 9.7% in October 2009, credit volumes grew at an annualized rate of 17% in early April, with increased lending to businesses and consumers.

Citing strong credit demand, ICICI forecasts a credit growth of 16%-20% for fiscal year 2011, after witnessing a 17% contraction in the fiscal year 2010. HDFC Bank expects its loan book to grow faster than the central bank's target of 20% during the fiscal year.

On Monday, the first day of trading after the release of earnings statements, HDFC gained 1.7% while ICICI tumbled 4.4% on NYSE.

HDFC

For the March quarter, HDFC showcased its consistent performance by delivering a quarterly profit that increased 32.6% year-over-year and 2.2% quarter-over-quarter. Net interest income increased by 27% year-over-year and 5.7% quarter-over-quarter.

On a year-over-year basis, retail loan grew a healthy 27%, against the industry average of 17%, surprising the market on the upside.

In the past quarters, HDFC focused on corporate lending, improving the bank's current and savings account share and lowering credit costs. The loan mix of the bank is well distributed between retail and corporate in the ratio 55:45.

The bank's margins were up by 20 basis points to 4.4%, as against 4.2% in the December quarter of 2009, following a strong 37% year-over-year growth in the current and savings account (CASA) share.

As per TheStreet's Analyst ratings guide, the stock has two buy, two hold and no sell ratings.

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