Housing Development Finance Corp. Ltd’s (HDFC’s) profit growth in the December quarter has been robust, with profit from operations before other income of the stand-alone company increasing by 16.1% to Rs.1,536.72 crore from a year ago. This was better than the September quarter, when growth in this indicator had been 15.6%.
Loan growth has been strong, with the individual loan book growing by 31% from a year ago, after adding the loans sold. This was the same rate as at end-September. The growth in the overall loan book was 26%, with growth in loans to non-individuals slowing during the December quarter. Spreads and net interest margins have remained steady.
Conrad D’Souza, member of the executive management at HDFC, pointed out that net interest income grew 19% in the December quarter, the same rate as for the nine months ended December. Growth in loan approvals, at 18% for the nine months ended December, is the same as that for the six months ended September.
But fee income, surplus from cash deployment schemes of mutual funds, dividend income and “other interest” was lower in the December quarter than a year ago. HDFC’s chief executive Keki Mistry said that fee income was lower because commissions paid for bringing in customers for housing loans are offset against it. D’Souza said that “other interest”, or interest from investments such as government securities, was less due to lower interest rates in the markets. The same goes for the surplus from the cash deployment schemes.
On the expenses side, provision for contingencies has increased because provision for standard assets, which earlier could be charged to reserves, is now routed through the P&L (profit and loss) account.
Asset quality has become better. Gross non-performing assets, which were 0.77% of the loan portfolio at the end of September, are now down to 0.75% of loans. The capital adequacy ratio is a high 17.5%.
HDFC’s excellent asset quality, its lack of nasty surprises and ability to grow at a consistently robust pace during good times and bad has led investors to bid up its price, and the result of the rich valuations has been that it has underperformed the BSE Bankex over the last quarter. But with the economy having bottomed out and with lower interest rates, growth in housing loans can only get stronger.