Loan approvals at Housing Development Finance Corp. Ltd (HDFC) during the December quarter amounted to Rs12,692 crore, a 31.7% increase compared with a year earlier. Disbursements during the quarter were up 18.7% year-on-year (y-o-y) to Rs11,185 crore.
In contrast, loan approvals were up 13.9% y-o-y in the September quarter, while disbursements increased by 29%. The big y-o-y rise in loan approvals during the last quarter may not, however, be reason for excitement, given the depressed conditions prevailing during the December 2008 quarter.
Indeed, if we look at loan approvals in the December 2007 quarter, the growth in two years has been a modest 22%. Both approvals and disbursements were lower in absolute terms than in the September quarter, but that is not unusual; the same trend was seen in the last three years.
Spreads on loans improved substantially during the quarter. While the spread was 2.25% for the nine months ending 31 December, it was 2.2% in the first half of the fiscal. Lending rates have been cut, but the cost of funding has fallen even more. While interest expenses went down far more than interest earned, fee income, dividend income and surplus from cash management schemes were all higher than in the year-ago period.
Net interest income showed substantial growth. Add to that profits from sale of investments and containment of expenses, and HDFC’s net profit rose by 22.8% y-o-y, slightly lower than the 24.3% growth in the previous quarter.
The company’s asset quality remained excellent, with gross non-performing loans at 0.94% of loans, at Rs852.52 crore. That’s lower than the Rs860.21 crore at the end of September.
HDFC has weathered many challenges and has been able to consistently deliver results during periods of both high and low interest rates and during periods of severe competition from banks. This track record has led to the stock trading at a premium to the sector and that has held back returns for investors. The stock has underperformed the Bankex index on the Bombay Stock Exchange. But with growth in the economy bouncing back, mortgages, too, will increase and the firm’s insurance subsidiary should also do better. That may reduce the underperformance.
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