HDFC Bank’s non-banking finance subsidiary, HDB Financial Services, saw loan growth of just 2.3 per cent in the second quarter of the fiscal, but is now looking at rolling out new products and is confident of higher growth.

“They have a lot of new products...the prospects are bright. They have gone into gold loans micro finance, two-wheeler loans, second-hand car loans, and they are looking at a few new products. Growth will come back there as well,” said HDFC Bank’s Managing Director and CEO Aditya Puri in an analyst call after the second quarter results on October 17.

According to an HDB Financial Services spokesperson, the company has launched loans for passenger new and used cars and two-wheelers. “We have signed an MoU with top two auto manufacturers in the country,” he further said.

In response to an email query from Businessline , he further said loan disbursements by the company had been impacted by the lockdown in the first quarter, but reached 80 per cent of pre-Covid levels by the second quarter.

From September 2020, collections have improved and are at pre-Covid levels.

On a question on whether the second quarter loan growth was affected due to caution by the company or lack of demand, the spokesperson said in some industry segments such as commercial vehicles financing, the overall industry is going through a slowdown, which has impacted the demand from customers.

“In the business loans segment, the company is being very selective to the customer that they extend the loans to given the uncertain economic environment,” he further said.

NPA recognition

The company also follows a more conservative NPA recognition policy, which is in line with the banking system and has made credit impairment provision accordingly, the spokesperson said.

“The profits would be higher if HDB’s recognition policy was in line with the one being followed by the NBFC industry,” he added.

This issue was also touched upon by Puri who noted that if it had followed industry standards, the rest of the NPA and profits would have been very different. “Both the boards have asked... to go back to the RBI and advice them we are reverting to what is industry standards,” he said in the analyst call.

While HDFC Bank posted an 18.4 per cent increase in net profit in the quarter ended September 30compared to a year ago, HDB Financial Services reported a net profit of ₹ 29.9 crore compared to ₹213 crore in the previous quarter.

The total loan book grew by a mere 2.3 per cent to ₹ 57,014 crore as on September 30against ₹55,759 crore a year ago. Asset quality was also under pressure with gross and net NPA at 4.3 per cent of gross advances and 3.1 per cent of net advances, respectively.

An India Financials note by Bernstein on HDFC Bank noted that HDB Fin reported a loss in Q2 FY21 on back of large credit costs, but said that it remains well capitalised and will have balancesheet support from the bank. “We expect the bank to remain cautious on sensitive product categories such as self-employed unsecured loans, business loans, vehicle loans,which form a big part of HDB's business,”it further said.

Motilal Oswal in a research note said that advances growth has slowed, but new product launches would result in a demand uptick for HDB Financial Services.

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