In History Of HDFC, Can’t Remember A Quarter With 60% Disbursement Growth: Keki Mistry
Housing Development Finance Corporation Ltd. reported a 60% year-on-year rise in its disbursements for individual borrowers in the January-March quarter — the highest quarterly growth the company has ever recorded. The growth this year, while anchored by middle and low-income borrowers, got a boost from those looking to buy homes in metropolitan cities, said Keki Mistry, vice chairman and chief executive at the country’s largest mortgage financier.
“In HDFC’s history, I cannot remember a full quarter where we have shown 60% growth, that too at a time which is Covid impacted and compared to a period which was not Covid impacted,” Mistry told BloombergQuint in an interview.
HDFC’s experience is in sync with data emerging from the real estate sector, which shows that a number of well-off consumers put their forced savings from the pandemic towards purchasing a home. Home sales in India’s top cities have surpassed pre-pandemic levels in the quarter ended March, said a report from Anarock Property Consultants.
“The average loan amount for us has been around Rs 26-27 lakh. Now this year, for the year ended March 2021, the average loan amount has increased from Rs 27 lakh to Rs 29.5 lakh. This is not a material rise, but it is still a rise which is clearly reflective of the fact that even in metropolitan cities like Mumbai, Delhi and Bengaluru there has been growth,” Mistry said.
The share of Maharashtra in the company’s loan book has increased to 28% from 26% a year ago. This was spurred by the state government’s decision to lower its stamp duty charges during the last financial year, Mistry said. “If you look at Maharashtra state's revenue from stamp duty, despite the lower stamp duty cost, they have recorded higher revenue than what they do historically,” he said.
To be sure, overall loan growth, net of repayments and prepayments, is slower. Loans on an asset under management basis have risen 10.3% year-on-year to Rs 5.7 lakh crore as of March 31. Outstanding individual loans rose 14% year-on-year, while non-individual loans reported a 4% growth.
Why has India’s largest non-bank housing finance company recorded this high growth in a year ravaged by the Covid-19 pandemic? According to Mistry, the need for newer and bigger houses have gone up.
“...robust growth (is) coming about by virtue of the fact that Covid has also has brought about the need for people to look at new houses, bigger houses. Both husband and wife are working from home, so you need your own space, you need your own privacy. These are all factors which have resulted in this growth,” Mistry said.
Will the second wave of Covid slow the breakneck speed of growth seen by the lender. It might, the housing financier cautioned in its earning release.
“At this juncture, there continues to be a great deal of uncertainty on the duration and intensity of the second wave and the resultant impact it may have on the corporation and the overall economy,” HDFC warned in its earning release.
“It is too soon to judge...We are monitoring our book, Mistry said.
Growth With Rising Stress?
While, on the one hand, new demand has seen a rise, there are some signs of stress in the existing portfolio.
As of March 31, the company’s gross non-performing asset ratio stood at 1.98%, as compared with 1.91% as of December 31. The third-quarter figure includes accounts that were not recognised as NPA due to a Supreme Court order barring lenders from recognising bad loans. However, HDFC’s cumulative Stage 2 and Stage 3 assets, or accounts that are overdue for more than 30 days, stand at 8.6% of the loans as of March 31.
According to Mistry, this is mainly because the lender has been recognising loans under the one-time restructuring scheme as Stage 2 assets, even if they are not in default.
“Wherever we see even the slightest hint of distress, we have been recognising accounts under Stage 2,” Mistry had told analysts on Friday.
During the financial year, HDFC has invoked restructuring for loans worth Rs 4,457 crore under the Reserve Bank of India’s scheme for loans affected by Covid-19. Of this, restructuring schemes have already been implemented in loans worth Rs 3,687 crore, according to disclosures made to the stock exchanges. This includes retail loans worth Rs 923 crore and corporate loans worth Rs 2,763.65 crore.
“We don’t think there will be a lot of Stage 1 assets (standard assets) moving into Stage 2. But the movement from Stage 2 to Stage 3 (NPA) is always possible. It is something we are always reviewing on a continuous basis. Having said that we are very proactive on provisioning,” Mistry told BloombergQuint.
As of March 31, HDFC’s total provisions stood at Rs 13,000 crore, as compared with the regulatory requirement of Rs 5,491 crore.
Have Interest Rates Bottomed Out?
in FY21, most lenders lowered home loan rates to the lowest they have been in at least 10 years. Rates at HDFC, for instance, range from 6.75-8%, according to information available on loan aggregator Bank Bazaar. Others like the State Bank of India are offering rates between 6.7-7.50%.
Sharp cuts in interest rates from the central bank, the excess liquidity in the system and the low demand for overall credit have allowed for rates to fall. Over the next three to six months, interest rates are unlikely to increase or decrease in a big way, said Mistry. “Five or 10 basis points (reduction) is always possible depending on the lender’s balance sheet and their liability structure. But there won’t be any material movement.”
If the second wave of Covid cases had not hit India, market rates could have gone up in six to nine months, whether the RBI raised rates or not. But that is now unlikely, Mistry said.