The Centre’s demonetisation move was expected to have a big impact on the real estate market, leading to correction in home prices and slackening of demand, and hence pain to housing finance companies (HFCs).

But market leader Housing Development Finance Corporation (HDFC) continued its steady performance in the latest December quarter. The company’s 17 per cent growth in core net interest income was led by the near-16 per cent growth in total loans (net of loans sold to HDFC Bank).

HDFC’s healthy loan growth has been driven by higher growth in its non-retail segment. This segment, which has been impacted by the overall slowdown in the market, has been inching up in recent quarters.

In the December quarter in particular, the growth in this segment was led by lease rental discounting — a loan against rental receipts from lease contracts with corporate tenants. Overall, the growth in non-retail loans stood at 17 per cent year-on-year in the December quarter, up from 13 per cent in the September quarter.

In the retail loan segment, growth slowed marginally, but remained healthy. After growing 17 per cent in the September quarter, retail loans (net of loans sold to HDFC Bank) grew 15 per cent in the December quarter. The management stated that there was some slowdown in loan enquiries in the December quarter, but there has been an uptick in January.

While demonetisation could lead to buyers deferring purchases, on expectation of correction in prices, over the long run growth for HDFC is likely to remain healthy.

Leadership position in the housing finance market has been a key reason for the company’s healthy growth in the last couple of years. HDFC’s retail loan book has grown at a rate that is at least 5 per cent above that of banks in this segment.

Also, demonetisation will have a greater impact on players that have grown their loan books by price increases rather than volumes. For HDFC, though, the growth in its retail loans (23-25 per cent over the last three years) has mainly been driven by volumes. Currently, HDFC’s average loan size is about ₹25.7 lakh. Besides, as transparency in deals increases, loan amounts can move up substantially.

Funding sources One of the key strengths of HDFC is its ability to diversify its source of funding. This has aided margins in the past. The large liquidity in the system post-demonetisation has led to a sharp fall in rates, resulting in lower cost of funds.

The company’s spread (return on loans less cost of borrowings) has gone up marginally in the December quarter. The spread has moved up to 2.34 per cent in the December quarter from 2.28 per cent in the September quarter.

HDFC’s gross non-performing assets (GNPA) in the December quarter has gone up marginally to 0.81 per cent of loans from 0.76 per cent in the September quarter. The five-odd basis point sequential increase has been across retail and non-retail segments.

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