Mumbai: India’s oldest and biggest mortgage lender Housing Development Finance Corp. Ltd (HDFC) reported a 23% increase in third quarter (Q3) net profit on Wednesday, signalling a revival of demand for home loans as growth accelerates in Asia’s third largest economy.
The lender, a bellwether of demand for consumer credit that serves as a measure of confidence in the economy, posted a profit of Rs671.25 crore in the three months ended December, compared with Rs546.83 crore a year earlier.
The rise in profit was helped by Rs51.3 crore of treasury income and a drop in interest costs that saved HDFC around Rs300 crore in the quarter. That helped counter a 5.5% decline in total income (interest and non-interest income combined) to Rs2,762.21 crore in the period from a year earlier.
Attracting customers: Mistry says HDFC hopes to disburse Rs3,500-4,000 crore loans under its new scheme. Ashesh Shah / Mint
“The growth in profits is largely driven by loan growth,” said Keki Mistry, vice-chairman and managing director.
“Individual spending confidence is coming back,” he added. “We have seen growth in approvals and disbursements for the quarter, and the growth comes from across the country.”
Faster economic growth is boosting consumer confidence and demand for loans from individuals after a year-long downturn that depressed purchases of apartments and houses and led to a slump in property prices.
The economy grew 7.9% in the three months ended September, the fastest pace in five quarters, and is forecast by the government to expand 7.75% in the year to March.
HDFC approved loans worth Rs12,692 crore during the quarter, up 31.7% from a year earlier. Loan disbursements increased 18.7% on year to Rs11,185 crore.
Two measures that are closely watched by analysts improved.
The home lender’s spread— the difference between what it earned on loans and paid for funds—widened to 2.25 percentage points in the nine months to 31 December, from 2.2 percentage points in the year ended 31 March.
The ratio of non-performing loans, or loans on which no principal or interest is paid for at least 90 days, fell to 0.94% from 1.01%. Provisions for contingencies for the quarter ended 31 December stood at Rs684.17 crore, equivalent to 0.75% of the portfolio.
On the Bombay Stock Exchange, the HDFC stock rose 0.55% to close at Rs2,524.10 on a day the the exchange’s bellwether equity index, the Sensex, lost 0.07% to end at 17,474.49.
“No surprises in the results; the loan growth is in line with expectations,” said a banking analyst with a domestic brokerage, who did not want to be named because he is not authorized to speak to the media. “The high provisioning numbers—one should not read too much into it. They are just being prudent.”
The lender’s profit almost matched the Rs676 crore median estimate of 14 analysts surveyed by Bloomberg.
The institution’s loan book on 31 December stood at Rs90,410 crore, 9% up from Rs82,895.67 crore a year earlier. The average loan size is around Rs16 lakh, Mistry said.
To attract customers, the housing finance company has introduced a new home loan scheme. HDFC is offering a 20-year loan of Rs30 lakh at a fixed rate of 8.25% until 31 March 2012 to new customers who apply for a loan by 31 January.
“We aim to disburse about Rs3,500 to Rs4,000 crore loans under this scheme,” Mistry said.
Many commercial banks have also announced schemes to woo home buyers.
Axis Bank Ltd, the country’s third largest private sector bank, is offering loans of up to 25 years at a fixed rate of 8.25% for the first two years. From the third year, a floating rate based on a benchmark called the mortgage reference rate will kick in.
State Bank of India, the country’s largest bank, launched a scheme last year offering home loans at 8%, receiving an encouraging response from customers. The bank has extended the scheme until 31 March.
ICICI Bank Ltd, the largest private sector bank, has introduced a home loan product at a fixed rate of 8.25% for the first two years, after which floating rates will apply.