The extent of the slowdown in the housing sector can be gauged by looking at Housing Development Finance Corp. Ltd’s loan approvals quarter by quarter. For the quarter ended June, loan approvals amounted to Rs9,996 crore, compared with Rs7,713 crore over the corresponding period of 2007—growth was 29.6%. During the September quarter, loan approvals were Rs14,184 crore, compared with Rs11,235 crore in the year-ago quarter—growth fell to 26.2%. And in the December quarter, loan approvals amounted to Rs9,640 crore, below the Rs10,428 crore worth of approvals made in the December 2007 quarter—in other words, the year-on-year (y-o-y) growth in approvals was negative. Since loan approvals become future disbursements, the implication is that HDFC’s growth will be muted in future as well. No surprise, then, that the stock fell 7.5% on Wednesday.
Disbursements during the December quarter showed a growth of 17.6% y-o-y, decelerating from 22.6% y-o-y growth in the September quarter and 27.6% in the June quarter. Yet HDFC’s borrowings and deposits increased during the quarter—if it didn’t lend those funds, what did it do with them? It increased its investments—these went up from Rs6,990 crore at the end of September to Rs10,525 crore at the end of December. Investments have increased across the board, from shares in subsidiaries and associates to corporate and government bonds and in mutual funds. For instance, investments in mutual funds, including liquid funds, was in excess of Rs4,000 crore at the end of December, compared with Rs1,450 crore at end-September. But despite the increase in investment, unrealized gains on HDFC’s portfolio went down from Rs9,022 crore at the end of September to Rs6,826 crore at end-December. The numbers show an unprece-dented falling off of demand.
Naturally, the lower growth in disbursements led to lower profits. Profits before tax (PBT), exceptional items and “other income” amounted to Rs7,74.51 crore, a y-o-y growth of 18.7%. For the September quarter, in contrast, PBT, exceptional items and “other income” was Rs754.49 crore, a y-o-y growth of 30.4%.
The good news is that HDFC has been able to maintain both spreads and asset quality, and its capital adequacy ratio is high. There’s no doubt that the results have been affected by the liquidity crunch in October-November. It’s also possible that lower interest rates and falling real estate prices will lead to higher growth in future. But it’s not likely to happen soon.
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