HDFC Q1 Results: Net Profit Down 4.7%; Provisions Rise
HDFC’s asset quality held steady in the June quarter as it continued to offer an RBI-permitted moratorium to some of its customers
Housing Development Finance Corp.’s profit declined in the first full quarter affected by the coronavirus pandemic.
India's biggest mortgage lender saw its profit fall 4.7% year-on-year to Rs 3,051 crore in the three months ended June, according to an exchange filing. That compares with the Rs 2,532.2-crore consensus estimate of analysts tracked by Bloomberg.
During the quarter, HDFC Ltd sold shares in HDFC Life Insurance, resulting in a pre-tax gain of Rs 1,241 crore. In the year ago quarter, the lender had a profit on investments of Rs 1,894 crore.
To facilitate a like-to-like comparison, after adjusting dividend, profit on sale of investments, net gains on derecognition of assigned loans, provisioning and the impact of negative carry on higher liquidity, the adjusted profit before tax for the quarter ended June 30, 2020 stood at Rs 3,265 crore compared to Rs 2,684 crore in the previous year, reflecting a growth of 22%HDFC Ltd Press Release
Its net interest income rose 10% to Rs 3,392 crore, compared with the Rs 3,455 crore-forecast. Net interest margin stood at 3.1% during the reported quarter.
Asset Quality
HDFC’s asset quality held steady as the lender continued to offer a Reserve Bank of India-permitted moratorium to some of its customers.
The gross bad loan ratio stood at 1.87% at the end of the June quarter compared to 1.99% at the end of the March quarter. Non performing loans in the individual portfolio stood at 0.92%, while for the non-individual portfolio the ratio stood at 4.10%.
The lender is carrying provisions of Rs 12,285 crore as of June 3020. This includes Rs 916 crore in provisions against losses emerging from the Covid-19 crisis, of which additional provisions of Rs 440 crore were made during the last quarter.
“The company has made provisions against accounts in the lenders’ non-individual segment after assessing the various risks faced by these borrowers,” said Keki Mistry, vice-chairman and chief executive officer, HDFC Ltd. “We are done with high level of provisioning we have carried and will not need further provisioning for Covid-19 going ahead.”
Most brokerages expect bad loans across Indian lenders to rise after the moratorium ends. Housing financiers, however, are expected to be relatively better among non-bank lenders as borrowers prioritise home loan payments over other expenses, brokerages, including Centrum Broking and Edelweiss Research, said.
Advances & Deposits
During the quarter, HDFC Ltd saw 12% growth year-on-year in its total loan book, on an assets-under-management basis. Individual loan book grew 11%, while the non-individual loan book rose 14%.
Disbursements were impacted due to the nationwide lockdown but have improved with each passing month, HDFC said.
“The month of April was a complete washout and we did Rs 500 crore worth of disbursements. In May we disbursed Rs 2,300 crore in loans and in June we did around 68% of the retail business we would have normally done. Total disbursements in this quarter are at 71% of previous years and indications are that July will be over 70% of normal levels,” said Mistry.
Disbursements should be close to 90-95% of normal levels by the January-March quarter, he said.
In the short-term, housing demand has been impacted. But we are seeing that demand for housing is increasing and it will come back to normalcy with every passing quarter. The middle income group has seen improvements while the high-income category has been slow.Keki Mistry, Vice Chairman, HDFC Ltd.
Around 83% of incremental business during the quarter came from non-individual loans, given to strong AAA-rated corporates, the company said.
Capital Raising
The lender also said its board had approved a capital raising plan.
The HDFC board has approved raising of funds via issuance of equity shares / secured redeemable NCDs with warrants up to Rs 14,000 crore in a QIP basis, it said.
“We believe we must raise capital from a position of strength and must be ready to capitalise on inorganic opportunities or be able to comfortably fund expansion plans of our subsidiary and associate companies,” said Deepak Parekh, chairman, HDFC Ltd while addressing shareholders at the company’s annual general meeting.
He added that the Reserve Bank of India has asked the company to reduce its shareholding in HDFC ERGO General Insurance Company and HDFC Life Insurance Company to 50% or below. HDFC Ltd currently has a shareholding over a little over 50% in both insurance entities.