India’s largest mortgage finance company Housing Development FinanceNSE -0.07 % Corp (HDFC) reported a 27 per cent increase in net profit in the March quarter boosted by rising individual loans, but it clamped down on lending to builders amid tightening credit markets. HDFC’s profit rose to Rs 2,862 crore and the board recommended a dividend of Rs 21for the year.
Loan book grew12 per cent to Rs 4.06 lakh crore compared with 22.3 per cent. On a standalone basis, the growth in total individual loan disbursement slowed to 15 per cent in FY19 from 29 per cent in the previous fiscal. HDFC cited unfavourable lending environment for non-individual loans in the second half of FY19 as a major reason for loan book slowdown.
In FY19, HDFC sold significantly higher loans than normal at Rs 25,150 crore compared with Rs 6,453 crore in the previous year. HDFC has an arrangement with HDFC Bank where the bank sources loan for them. HDFC does the due diligence and the bank has the right to buy 70 per cent of the loan.
Individual loans comprise 74 per cent of the total loans, construction finance 12 per cent, lease rental discounting 9 per cent and corporate loans 5 per cent. On an incremental basis, individual loans constitute 85 per cent, construction finance 10 per cent, LRD 10 per cent and corporate loans were down 5 per cent.
“Our focus has largely been on individual loans,” said Keki Mistry vice-chairman, HDFC. “Tight liquidity conditions, over leverage and credit rating downgrades resulted in heightened risks across the corporate sector. We chose to preserve asset quality and be prudent by limiting some of its lending to corporates.”
Net interest income, the difference between interest earned and interest expended rose 19 per cent at Rs 3,161 crore from Rs 2,650 crore. Net interest margin, including the up-fronting of income because of loans sold as per Ind AS, was 3.3 per cent, the same as in the previous year.
Growth in net interest income at 18 per cent was significantly better than the 14 per cent in the previous fiscal as HDFC was able to retain the spread on loans (the difference between lending and borrowing rates) at 2.29 per cent. It also maintained net interest margin (NIM) at 3.3 per cent (including income from loans sold as per Ind AS accounting standards) compared with that in the previous fiscal. “We believe that the gap in growth rates of AUMs and loans will narrow from mid-FY20 onwards as base of selldowns normalise,” said Aashish Agarwal of CLSA.
Asset quality was stable given the punishing business environment. Despite a marginal rise in gross no-performing loans in nonindividual loan book, overall gross non-performing loans was Rs 4,777 crore, or 1.18 per cent of loans. The percentage was 0.70 per cent for non-performing individual loans. The spread on loans over the cost of borrowings for the year was 2.30 per cent. The spread on the individual loan book was 1.91 per cent and on the non-individual book was 3.17 per cent.
For the full year, HDFC’s net profit fell 12 per cent to Rs 9,633 crore. However, the company said that the reported profit for last year is not comparable to this year because HDFC had listed HDFC LifeNSE 0.12 % that generated investment income. Profit on sale of investments was Rs 1,212 crore compared to Rs 5,609 crore in the previous year. The consolidated profit for the year was up 30 per cent atRs 15,622 crore compared to Rs 11,980 crore.