HDFC to keep Rs1,575 crore from HDFC Standard Life IPO as special provision
Mumbai: Housing Development and Finance Corp. Ltd (HDFC) on Wednesday announced that it will make a special provision of Rs1,575 crore, using a part of the proceeds from the initial public offering (IPO) of HDFC Standard Life Insurance.
The additional provision is being made to create a buffer for any “unexpected” risks in future, India’s oldest and largest housing finance company said.
The mortgage lender stated in a stock exchange notification that the firm had made Rs5,250 crore profit from the IPO of its life insurance subsidiary in November.
It said the one-time gain gives it an opportunity to strengthen the balance sheet. The additional provisions over and above the regulatory requirements are being made on a voluntary basis, it added.
The amount used for creating special provisions constitutes about 30% of its profit from the HDFC Life IPO.
“The Corporation believes it would be prudent to utilize on-off pre-tax gains from IPO of HDFC Life to shore up the provisions and contingencies account and thereby build an additional buffer against any unexpected risks in the future,” the notification stated.
At the end of the second quarter of the current fiscal, the firm was carrying Rs3,235 crore in its provisions and contingencies account, over and above the Rs2,500 crore mandated by regulations, the notification stated.
According to analysts, while the additional provisioning could be a measure by the firm to strengthen its books ahead of its fund raising programme, a part of the proceeds from the IPO could also be used for creating provisions for the lender’s corporate book.
“While the overall asset quality indicators remain sound, despite the small rise in non-performing assets in the current fiscal, the strong profits realized provides an opportunity to increase provisions and further strengthen its balance sheet. This would be important as it explores raising capital in the near term,” said Karthik Srinivasan, group head for financial sector ratings at Icra Ltd.
To be sure, as on 30 September 2017, HDFC’s gross non-performing ratio for non-individual loans stood at 2.18% as against 2.09% in the preceding quarter.
Whereas, the non-performing loan ratio for individual loans remained stable at 0.65%.
The mortgage lender is also looking to raise about Rs13,000 crore to grow its business and for infusion into HDFC Bank. It will be infusing up to Rs8,500 crore in HDFC Bank and the balance will be used for growing its affordable housing business.
A part of the proceeds from the fund raise will be used to venture into the health insurance space and to launch a stressed assets fund focused on real estate.
Another analyst said on condition of anonymity that the lender could be making additional provisions as it plans to enter the stressed assets business and instead of showing windfall gain in one quarter, it is utilizing the proceeds to strengthen its buffer.
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