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BENGALURU - Shares of India's top private-sector lender HDFC Bank fell on Monday, even as it reported an in-line profit and better asset quality for the third quarter, as analysts flagged its unimproved margins and lower fees from its payments business.

HDFC Bank, the first Indian lender to post December-quarter earnings, over the weekend reported a record profit, and clocked record card issuances after the central bank removed curbs on the bank issuing new credit cards last year.

However, a decline in payment and credit card-related fees from a year ago — as the bank gave fee waivers as an incentive — was a new niggle for the lender to contend with, said YES Securities' analyst Shivaji Thapliyal.

Net interest margin, a key measure of profitability for banks, was unchanged at 4.1% from the previous quarter, as growth in its retail loan book — at 13.3% year-on-year — lagged overall loan growth of 16.5%.

"Retail credit growth remains sub-optimal, with its share at 47%, down from 53%-54% two years ago, weighing partly on margins," Emkay Global analyst Anand Dama said in a note, adding that slow car sales were impacting vehicle financing.

Growth in advances was led by commercial and rural banking loans, which grew 29.4%.

While analysts expect a recent surge in COVID-19 cases and related restrictions to impact lending in the final quarter, HDFC Bank said it was confident of navigating through the third wave.

Lower bad loan provisions pushed net profit for the three months to Dec. 31 up 18.1% to 103.42 billion rupees ($1.39 billion), beating analysts' estimates for a profit of 100.89 billion rupees, according to Refinitiv data.

The 1.4% drop in its shares on Monday undercut gains of 4.4% recorded so far this year. The stock rose 3% in 2021, underperforming a 13.5% rise in the Nifty Bank index.

($1 = 74.2770 Indian rupees)