The highlight of mortgage lender Housing Development Finance Corp. Ltd’s (HDFC’s) June quarter earnings was its loan book growth, which has now fallen to 13%, compared to 18% growth in the year-ago period. Analysts, however, said the results were good, seen in light of the poor state of the economy and relative to the rest of the industry. Indeed, even HDFC’s growth has remained in double digits only because of its strong individual loans franchisee. Here, growth has stayed rock solid at 17%, marginally down from the 18% growth in the year-ago quarter.
But its non-individual loan book, that is corporate loans, posted an all-time low growth of a mere 2%. In the past one year, HDFC’s exposure to this category has declined. And it looks like it has deliberately adopted a cautious stance here. In the backdrop of the recent liquidity-related concerns and slowdown in the real estate sector, HDFC’s vigilance isn’t surprising.
“Given the uncertainty and risk averseness in the lending environment for non-individual loans, the corporation opted to be prudent by curtailing some of its lending to non-individual loans,” HDFC said in a release.
Addressing the company’s annual general meeting, chairman Deepak Parekh said: “Banks are reluctant to lend and there has been a flight to safety where a select few, high rated NBFCs and HFCs have access to funding, while for several others, access to credit has been chocked. As a result, a number of NBFCs and HFCs have curtailed disbursements. One is hopeful that normalcy will be restored soon and, by the time the festive season sets in, some of the risk averseness should taper off.”
For now, HDFC continues to focus on lending to the affordable housing segment. “The challenge in the housing sector has been with the upper-middle segment and high-end luxury housing. I would like to reiterate that the demand for smaller sized homes at affordable price points is still strong,” Parekh added. In FY19, 37% of the home loans approved in volume terms and 18% in value terms have been to customers from the economically weaker section and lower-income group segment.
Even though the mortgage lender is trying to compensate by focusing more on the individual loans category, some repercussions could be felt on its overall margin growth, going ahead. In the June quarter, net interest margin remained flat at 3.3% on a quarter-on-quarter basis. It should be noted that between the two, the non-individual loans segment is a higher-margin business. But as they say, better safe than sorry.
The markets have rewarded HDFC’s cautious and steady approach, too. Its stock trades at a rich one-year forward price-to-book multiple of four times.