Hemmed in by interest rate hikes, HFCs see 19% dip in Q2 net profit

Listed housing finance companies (HFCs), as a group, posted a 3.7 per cent drop in second-quarter (Q2) profit year-on-year (YoY) to Rs 5,830 crore and 19 per cent sequentially on rise in interest expenses and uptick in provisions and write-offs.

Operating income rose 13.7 per cent YoY to Rs 54,086 crore in Q2 of 2022-23 (FY23). Sequentially, income was up 62.3 per cent, from Rs 33,331 crore in the first quarter (Q1) of 2021-22 (FY22).

The uptick in operating income reflects robustness in the home loan portfolio and hike in lending rates. Lenders have been able to pass on a part of the increase in policy rate, observed HFC executives.

The policy repo rate has gone up 190 basis points in the current financial year to date. Plus, there is expectation of another rate hike by the Reserve Bank of India in its December policy meeting.

Amongst large mortgage lenders, LIC Housing Finance’s total loan portfolio expanded 10 per cent YoY to Rs 2.62 trillion as of September this year. 

Loans by Can Fin Homes grew 22.23 per cent YoY to Rs 28,482 crore at the end of September.

Rating agency ICRA, in a report, said HFCs reported on-book portfolio growth of 11 per cent in FY22. The loan portfolio is expected to grow at 10-12 per cent in FY23.

While HFCs saw a tidy flow in income, they also had to shell out more to raise funds amid tight liquidity conditions and increase in the cost of money. This was evident from a 21.8 per cent YoY increase in interest expenses to Rs 15,635 crore in Q2FY23 and sequentially to 10.3 per cent, from Rs 12,832 crore in Q1FY23, according to Capitaline data.  

With clenched regulatory norms and focus on enhancing credit profile, the provisions and write-offs were up 86.5 per cent YoY to Rs 2,546 crore in Q2FY23. Sequentially, provisions and write-offs grew 161 per cent, from Rs 975 crore in Q1FY23.

ICRA, in its review of HFCs, said the asset quality indicators are expected to witness some improvement. Also, steady growth in the industry portfolio and profitability, along with a healthy provision cover, will shield margins.