As the Reserve Bank of India’s House Price Index seems to suggest, there is still good demand for housing in the country. That is also evident from Housing Development Finance Corp. Ltd’s (HDFC’s) March quarter results.
Individual loans grew by 31% from a year ago, after adding back loans sold, a pace that matches the preceding two quarters. Loan approvals for this category grew by 29% during the whole fiscal year compared with 18% for the nine months ended December, pointing to a huge surge in the March quarter. Retail loans now make up 67% of the total loan book compared with 64% a year ago.
The only blip was the deceleration in non-individual loans. Over the past year, this category contributed to only 19% of incremental loan book growth. It was also responsible for dragging down HDFC’s overall loan disbursement growth rate to 16% in fiscal 2013 compared with 18% a year ago. Thus, the growth in HDFC’s overall loan book after adding back loans sold is 24%, a comedown from the 26% in the December quarter.
The slight slowdown in the loan book impacted profits as well. Profits from operations before other income grew 14.8% from a year ago, down from the 16.1% growth in the December quarter. Note that HDFC’s cost to income ratio also worsened slightly to 7.8% in the just-ended year because of one-time rental costs.
Interest spreads and margins are largely stable; for the just ended fiscal year, spreads stood at 2.30% compared with 2.28% for the nine months ended December.
Similarly, net interest margin for the full year was 4.2% compared with the 4.1% for the three quarters ended December. The firm has shifted its borrowings from term loans to bonds, debentures and commercial paper which enabled it to lower cost of funds and keep spreads stable.
Asset quality remained stable with gross non-performing loans as a percentage of overall loans decreasing from a year ago. Provisioning was well in excess of what is required by regulation.
The growth in the individual loan book should also assuage investor concerns that increasing competition was affecting HDFC’s growth and spreads. The company’s consistent performance means that its valuations are among the richest in the financial sector. That leaves limited room for a rally in stock as can been seen from its marginal outperformance to the Bankex index since January.