BackLIC Housing Finance continues focus on high margin loans
LIC Housing Finance's overall loan book grew 15% in the June quarter compared to 16% in January-March
Premium
LIC Housing Finance Ltd’s bias towards high-yielding advances can be seen in the changing tone of its loan book. The share of loans against property, non-core and developer loans in its outstanding credit portfolio increased to 12.2% at the end of the June quarter from 11.5% a year ago.
This has helped to steadily increase its margins. In the June quarter, it reported a net interest margin of 2.61%. That’s a 20 basis point improvement from the year-ago quarter, although it is less than the high of 2.71% during January-March. A shift in its funding pattern away from bank loans to retail deposits has helped as well. Weighted average cost of funds fell to 9.08% in the June quarter from 9.16% in the whole of FY16.
The increase in net interest margin comes during a period of steady growth in the firm’s loan books. LIC Housing Finance’s overall loan book grew 15% in the June quarter compared to 16% in January-March. While the individual loan portfolio was up 15%, loans to developers grew 39% on the back of disbursals more than doubling from a year ago.
Of course, an increase in higher-yielding loans also indicates a rise in risk. Asset quality has somewhat worsened, though it is still under control. Gross non-performing assets make up 0.59% of its loan book compared to 0.45% three months ago. Credit costs also rose, though that was more to do with some ageing loans which required higher provisioning. But it was enough to reduce the net profit increase to 7% year-on-year despite a 25% increase in net interest income.
With personal loans being the fastest growing segment and increasing demand for housing in smaller towns, LIC Housing is expected to see decent loan growth in the coming quarters. The firm intends to ramp up the loan against property/non-core proportion of its loan book to 20%, according to Edelweiss Securities Ltd. That should help sustain a margin increase at a time when it has a smaller proportion of fixed rate loans in a falling interest rate environment. Asset quality concerns would also be assuaged to some extent by the firm’s provision coverage ratio of 124%.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
