A motorcyclist ride past residential apartment buildings in Palava City on the outskirts of Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

LIC Housing Finance Sees Spread On Loans To Hold Around Current Levels

LIC Housing Finance Ltd. expect spread on loans — the difference between lending and borrowing interest rates — to remain at the current levels for the next few quarters amid rising bad loans.

The quantum of bad loans for the housing financier nearly doubled during the April-June quarter.

“We are after our recovery teams because our company is not accustomed to any level of gross non-performing assets above 1 percent,” Managing Director and Chief Executive Officer Vinay Sah told BloombergQuint in a post-earnings interaction. “We have put in a cell at the corporate level to see that these numbers come down.”

The company saw its bad loan ratio rise to 1.21 percent of the total advances in the first quarter, from about 0.78 percent last year. Sah said that traditionally bad loan numbers rise in the first quarter, and with checks in place, things would soon start getting better. Net interest margin for the company contracted to 2.34 percent from 2.52 percent during the period.

Improvement should start coming in the second quarter. Our earnest effort will be to bring it down to one percent.
Vinay Sah, CEO and MD, LIC Housing Finance

No Respite For Spreads

LIC Housing Finance has increased their prime lending rates twice in the April-June period and has additionally hiked rates further in August, taking the rate hike to a count of three since April. Spread on loans, or the profit margin on loans, for the company has been under pressure due to increase in the cost of borrowing.

Spread on loans during the quarter came down to 1.90 percent from 2.08 percent in the year-ago period. Despite three lending rate hikes, spreads for LIC Housing Finance are expected to remain around current levels, the management guided.

Spreads are under pressure but I don’t see any decrease in spreads going ahead.
Vinay Sah, CEO and MD, LIC Housing Finance

On interest in picking up a stake in PNB Housing Finance and inorganic growth strategy, Sah said: “We have not given that a consideration at this point in time”.

Q1 Earnings Highlights

  • Net interest income rose 6.6 percent over last year to Rs 980 crore.
  • Net profit grew 18.3 percent to Rs 568 crore.
  • Loan growth stood at 14.7 percent year-on-year, the slowest in over eight quarters.
  • Growth continued to be led by developer loans during the quarter. Individual loan portfolio grew 13.3 percent during the quarter, while growth in developer loans stood at 49.5 percent.
  • Loan disbursements grew by 10 percent to Rs 9,594 crore, again led by developer loans. Individual loan disbursements grew by 8.8 percent while developer loan disbursements growth stood at 115 percent during the quarter.

Watch the full interaction here: