For the six months ended 30 September, Housing Development Finance Corp. Ltd’s (HDFC) loan approvals grew by 18% compared with the same period last year. In the June quarter, however, loan approvals had grown 22% compared with the year-ago three months. This appears to indicate slowing in growth of approvals during the September quarter. But Conrad D’Souza, member of the executive management at HDFC, said that this is the result of a base effect and he sees no slowdown in demand for housing loans.
There was also a deceleration in loan disbursements during the September quarter, seen from the fact that while disbursements increased by 20% in the June quarter compared with the same quarter a year ago, disbursements in the six months to end-September 2011 grew by a lower 19%, compared with the first six months of fiscal 2011 (FY11).
The slower disbursements are reflected in the growth of the housing finance company’s loan book. As on 30 September, the growth in the loan book (inclusive of loans sold) has been 24%, while the same was 25% as on 30 June. D’Souza said the company’s target for loan book growth at the end of FY12 is 18-20%.
That said, HDFC’s results beat Street expectations and the stock bounced a bit on Monday. Net interest income (NII) for the September quarter has risen by 16.6% compared with the same quarter of FY11. This rate of growth is a bit lower than that notched during the June quarter.
NII growth should track loan growth. The spread on loans over the cost of borrowings was 2.27% during the September quarter compared with 2.3% in the June quarter. But this is well within the company’s target of a spread of between 2.15% and 2.35%.
HDFC has been able to pass on the higher cost of loans without much difficulty, although there’s scope for the spread to go down a bit more. A higher-than-expected profit from the sale of investments helped beat analysts’ profit estimates for the company.
Asset quality is not an issue at HDFC; gross non-performing loans were at 0.82% of the loan portfolio compared with 0.83% at the end of June. The mortgage lender also has enough capital for its needs.
It’s also worth mentioning that its loan book growth is much better than that for the banking sector as a whole. This, along with its excellent asset quality and steady growth rate in good times and bad, has led to the HDFC stock, in spite of being pricey, outperforming the Bankex guage of BSE.
Given the concerns with banks at present, that outperformance is likely to continue.