Home >Markets >Mark To Market >HDFC raises guard against virus as lockdown hits retail loan book

India’s largest non-bank mortgage lender has dodged many a crisis in the past, including the morbidities that came from the prolonged troubles of the real estate sector. However, the covid-19 pandemic has left a deep mark on HDFC Ltd’s balance sheet. It had to set aside 1,199 crore provisions towards covid-related risks, which pulled its net profit down 5% year-on-year. While provisions may be painful, they are necessary when a pandemic is raging.

The bigger trouble for HDFC is that it was not able to disburse retail loans as it used to before and could not collect repayments because of the moratorium. A lot of this was also because of the restrictions, which are now more localized after the national lockdown was lifted. Disbursements may improve from here on, but the road to normalcy is long.

“Demand for housing is increasing. What we disbursed in July would be more than June. But it would take some time for us to come back to complete normalcy," said Keki Mistry, vice-chairman and CEO, in a virtual media address. Mistry believes that disbursements may come back to 90-95% of normalcy by January 2021.

Locked out retail
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Locked out retail

As such, the blow from the pandemic is on the individual loan book growth. Retail loans grew by 11% in the June quarter, down from 14% in the previous quarter. The share of individual loans in incremental disbursals has dropped sharply to 17% from the average 80-90% in the previous quarters. Overall loan growth remains unchanged at 12% y-o-y. However, where the growth is coming from is critical. HDFC has assured that it has lent to top-rated corporate borrowers during the quarter. Even so, the fact remains that non-individual book is far more riskier than the retail portion.

Even more painful is that unlike its banking peers, including its own subsidiary HDFC Bank, the mortgage lender has not seen a sharp drop in moratorium levels. As of June-end, 22.6% of its assets under management was under moratorium, down from 27% as of March-end. Earlier this week, HDFC chairman Deepak Parekh had implored RBI governor Shaktikanta Das to not extend the moratorium period beyond August. While Parekh’s pitch was that moratorium is being misused, the impact on the balance sheet is clear. HDFC and many other non-banks would bleed if the moratorium is extended. As such, loan growth is hard to come by especially from real estate, which is already in deep slowdown. What investors can take comfort in is that HDFC will leave no stone unturned to shield against covid-19 risks. The lender plans to raise 14,000 crore as a buffer against future risks. Considering the enviable track record of the lender, HDFC is bound to find it much easier than others to raise money.

That aside, the picture on growth is not favourable. The true impact on asset quality is shrouded by the moratorium. As the lender pivots towards innovative ways to reach borrowers through digital processes, its loan growth may not resemble the past.

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