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Photograph by Pradeep Gaur/Mint; Graphic by Vipul Sharma/Mint
Photograph by Pradeep Gaur/Mint; Graphic by Vipul Sharma/Mint

HDFC’s Q3 results: A ‘realty’ check for the corporate loan book

  • Non-individual category largely responsible for the marginal rise in gross NPAs to 1.22%, from 1.13% in earlier quarter
  • The mortgage lender’s cautious approach comes in the backdrop of the ongoing liquidity-related concerns in the industry

Mortgage lender Housing Development Finance Corp. Ltd’s (HDFC’s) total loan book grew 15% to 3.85 trillion in the December quarter (Q3), with the individual loan book growing at a steady 17%. While the overall loan book growth was largely in line with analysts’ expectations, growth in non-individual or corporate loans slipped to single digits.

Even though the individual loans segment is a key contributor to the company’s total loan book, slowing growth of its non-individual loans segment is a negative surprise and will dampen investor sentiment, said analysts.

Non-individual loans comprised about one-fourth of HDFC’s assets under management.

As the alongside chart shows, growth in the non-individual segment has fallen to a multi-quarter low of 9%, and is down from 21% in the year-ago period.

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“Within the non-individual loan book, while construction finance and lease rental discounting have increased 9% and 11% respectively, corporate loans declined by 4% and the company has been lending cautiously here. Corporate lending really happens when a number of companies start taking up new projects and need housing for their employees," said HDFC chairman and chief executive officer Keki Mistry.

He added that the non-individual category was largely responsible for the marginal increase in gross non-performing assets to 1.22% from 1.13% in the September quarter.

The mortgage lender’s cautious approach comes in the backdrop of the ongoing liquidity-related concerns in the industry and the slowdown in the real estate sector.

Shares of HDFC fell more than 2% intraday on the National Stock Exchange, but later recouped about half the losses. They are now only about 6% lower than the highs before the liquidity crisis in September 2018, implying that investors have ruled out a major impact on the company. In that backdrop, the slowing of the non-individual segment is a worry.

While there were no major negative surprises in HDFC’s earnings, the stock is trading at a one-year forward price-to-book of 4.29 times and looks priced to perfection.

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