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But for the migration to IND AS accounting that has led to some restating of the financials of the previous year, the performance of Housing Development Finance Corporation (HDFC) has not seen much deviation in the past few quarters. While a structural slowdown in the home loan segment over the past two years has rubbed off on housing finance companies and banks, HDFC’s volume-driven growth and focus on the affordable housing segment have kept its performance on a sound footing.
During the June 2018 quarter, 37 per cent of home loans approved in volume terms and 19 per cent in value terms have been to customers from the economically weaker section (EWS) and low income group (LIG).
Led by 23 per cent YoY growth in the overall loan book (including sale of loans to HDFC Bank) and 20 per cent growth in the net interest income, HDFC reported a 27 per cent growth in profit before tax, dividend and sale of investments in the June quarter. Dividend of Rs 511 crore from HDFC Bank further boosted HDFC’s earnings for the quarter -- net profit grew by 54 per cent YoY in the June quarter.
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Despite home loan growth slackening significantly for banks over the past two years, dominant players in the housing finance space such as HDFC have been able to maintain a healthy traction in loans. From 17-18 per cent levels (until FY16), home loan growth for banks moderated 15 per cent in FY17 and further to 13 per cent in FY18. HDFC’s growth in the retail segment has been steady at 23-25 per cent. In the latest June quarter, too, retail loans (including sale of loans to HDFC Bank) have grown by 25 per cent YoY, after a 26 per cent growth in FY18. For HDFC, growth has also mainly been volume driven that mitigates the risk of a sharp fall in home prices.
HDFC continues to maintain its spread (return on loans less cost of borrowings) within a narrow band. In the June quarter, the company’s spread on loans stood at 2.28 per cent, almost similar to the levels seen in the same quarter last year.
HDFC’s ability to maintain a low level of delinquencies over the years has been a key positive. The gross non-performing assets (GNPA) in the June quarter stood at 1.18 per cent of loans, marginally up from 1.11 per cent in the same quarter last year.
Under Ind AS, asset classification and provisioning moves from the ‘rule based’, incurred losses model to the Expected Credit Loss (ECL) model of providing for expected future credit losses. According to National Housing Bank norms, HDFC is required to carry a total provision of Rs 3,006 crore. As against this, the balance in the provisions and loan losses account as on June 30, 2018 stood at Rs 4,758 crore.
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