The home loan major has shown resilience even in troubled times.
Housing finance major, HDFC, continued its steady progress, as guided by the management. The net interest income rose 17 per cent y-o-y and net profit increased 20 per cent for the September quarter. The interest spread was 2.27 per cent, almost the same as 2.3 per cent in the previous quarter.
This was true for other parameters as well, and the company continued its stable growth. Loan growth, at 19.5 per cent, was at the upper end of the 18-20 per cent target band as given earlier by the management, with approvals growing at 18 per cent. This quarter saw a stronger retail performance over Q1 FY12 with corporate loans staying flat in this period.
Its superlative asset quality prevailed in an atmosphere of increasing systemic concern with net non-performing loans (three-month overdue) at 0.82 per cent, marginally lower than last year. AN amount of Rs 255 crore was utilised from its additional reserve for 40 basis points higher standard asset provisioning mandated by the Reserve Bank of India (RBI) and the total provision for contingencies stood at Rs 1,525 crore against Rs 1,196 required by RBI.
Conrad D'Souza, member of executive management, pointed out that the portfolio quality has been steadily improving on a y-o-y basis and he saw no reason for any concerns going ahead. He highlighted that effective lending rates were at similar levels (about 11 per cent) in 2008 and as such, both historical and empirical evidence don’t suggest that this is high enough to result in higher retail defaults.
Its dual rate product or the teaser loan portfolio (about Rs 20,000 crore) is about 15.75 per cent of its total loan book of nearly Rs 1,27,000 crore which will reset to floating rates in April 2012. A Crisil report has flagged concerns that given the prevailing high interest rate environment, the upcoming system-wide reset could throw up quality issues for the industry at large. The issue is that higher monthly payments are not commensurate with income growth for borrowers. The report adds that about 70 per cent of such products were generated by banks and the remainder by housing finance companies. D’Souza, however, emphasised that HDFC doesn’t see any concern on this front as well.
The predictable and conservative growth makes it a good anchor in turbulent times. The stock, which trades at about five times FY12 (4.26 times FY13) book value per share estimates, is at a significant premium to peers for a good reason.