HDFC Bank On Corporate Loan Growth, Asset Quality And More

HDFC Bank Ltd. said borrowing for working capital and capital expenditure was behind the growth in its corporate loan book in the fourth quarter ended March, a period when businesses bore the brunt of the Covid-19 outbreak.

India’s largest private bank saw its corporate advances jump 29.3 percent year-on-year, while its retail loans rose 14.6 percent in the three months ended March, according to its filings. Overall loan book grew 21.3 percent to more than Rs 9.93 lakh crore.

Credit growth has slowed as the new coronavirus pandemic has stalled business. Lenders including Kotak Mahindra Bank Ltd. and Bajaj Finance Ltd. have sounded caution.

HDFC Bank’s management, in a conference call after announcing fourth-quarter earnings, said the bank has not lowered its risk criteria or underwriting practices to chase growth. Demand came from corporates and customers, it said.

Here’s what the management said on loan book growth, asset quality and more:

Corporate Borrowing

• 75-80 percent of corporate book is to AA and above rated companies.
• Business banking (wholesale SME business) had a satisfactory performance
• Growth in corporate banking aided by companies’ desire to keep liquid cash post lockdown.
• Bank disbursed to public sector corporations, nodal agencies, private sector and multinationals.
• Focus on customers with strong access to liquidity through public markets—debt or equity—or are owned by the government or large business groups.
• Saw growth in epidemic-resistant businesses—power and power infrastructure, agriculture and allied activity including fertilisers, material and energy sector, and consumer discretionary.
• Supported liquidity needs of banks and non-banks by using RBI provided tools such as priority sector onlending, securitisation, direct assignment and inter-bank participation certificates.

An analysis of top 20 disbursements by value during the quarter showed:

• 41.9 percent was towards working capital requirement.
• 23.6 percent for capital expenditure.
• 15.5 percent towards balance sheet borrowing for acquisition of assets, including via insolvency process.
• 9.3 percent was onlending for priority sector.
• 9.7 percent other reasons.

Small And Medium Enterprises

• From mid-March to mid-April, the wholesale SME book showed a downward trend
• About 85 percent of accounts disbursed in this quarter had a collateral cover in excess of 100 percent.
• 77 percent of SME book is collaterised by real estate.
• 9 percent of the SME portfolio customers may find themselves vulnerable—this is without taking into account any moratorium or days past due freezing. Within this, management sees delinquencies rising by just 0.5 percent.
• Not many have said they would seek moratorium; several would like to arrange funds themselves.

Retail Book

• Delinquency level for HDFC Bank is 40-60 percent of the rest of the market. Even among borrowers with low CIBIL scores, the risk is 30-50 percent below the market level.
• 95-98 percent of customers were non-overdue/not in default at the time of applying for the moratorium.
• A survey of 1,000 customers suggests the moratorium is being taken out of caution, rather than stress.
• Percentage of retail customers availing moratorium is in low single digits.

Unsecured Portfolio

• Still advancing 10-second loans but the base has been pared considerably; probability of defaults very low.
• 80 percent of unsecured portfolio is to salaried individuals. Of that, 67 percent is to employees of very well-regarded entities, AAA- and AA-rated companies, government firms, etc. The observed delinquency rate in remaining 33 percent is just 0.09 percent because of underwriting filters.
• The bank expects greater impact on 20 percent of unsecured portfolio that comprises loans to the self-employed segment as some people will find it difficult to make payments. Yet, bank said it has been careful in selecting customers.

Asset Quality

• Will grant moratorium as per RBI guidelines.
• Because of this relief, gross non-performing assets, net non-performing assets and annualised core slippage ratio were lower by 10 basis points, 6 bps, and 40 bps, respectively
• Total credit cost at 151 basis points against 129 in the previous quarter and 91 basis points a year earlier.

Moratorium Trend

• Expects several large corporates with access to public equity and debt market to conserve cash.
• Small private players in wholesale SME without access to liquidity in public market would look to reduce their operating and financing cost.
• A very small percentage of business banking customers have said they will avail moratorium.

HDB Financial

• Assets grew a modest 6 percent.
• The non-bank lender took opt-out facility, unlike the bank which provided an opt-in facility, for the moratorium. Customer profile of HDB is two notches below that of the bank.

Other Key Highlights

• Continue with the strategy of building the deposit base.
• Will continue to benefit from the flight to safety of liabilities.
• Have sufficient provisioning cover in the form of floating and contingent provisioning built over years.
• Excess liquidity position of the bank impacted net interest margins by about 10 basis points
• Lockdown caused disruption across all banking segments; enough provisions to take care if things get prolonged beyond June.
• Yet to assess whether we would participate in LTRO 2.0; still trying to find out which NBFCs, MFIs we are comfortable taking exposure to.
• Outstanding microfinance loan exposure at Rs 8,500 crore.
• Seeing lower spends on credit cards post the lockdown; March was lower than the average of January and February by 21 percent; 80 percent customers internal.
• Cost of deposits has come down by 15-20 basis points.
• Advances growth will remain higher than the market; while retail portfolio will grow at a slower pace, the corporate segment would do well.
• Exposure to high-risk sectors impacted by Covid-19 such as travel is in low single digit.