Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Markets / Mark To Market/  LIC Housing Finance’s bad loan troubles are far from getting over
BackBack

LIC Housing Finance’s bad loan troubles are far from getting over

Despite the provisions, LIC Housing Finance’s coverage ratio at 40% is far lower than most peers in the industry

LIC Housing Finance’s stage three loans, as a percentage of its book, rose to 4.12% in the March quarter from 2.86% in the year-ago periodPremium
LIC Housing Finance’s stage three loans, as a percentage of its book, rose to 4.12% in the March quarter from 2.86% in the year-ago period

Investors are worried about LIC Housing Finance Ltd’s March-quarter performance because the lender does not seem to have turned a corner in its asset quality troubles. In fact, the insurance against stress in terms of provisions looks inadequate too.

The housing finance company reported a 5% drop in net profit to 398.92 crore, which missed Street estimates by a wide margin. It is clear that the lender had to set aside a large amount as provisions for the stress emanating from the covid-19 pandemic. Its provisions stood at 984.8 crore, four times more than what it had set aside in the previous quarter and exponentially higher than the year-ago period.

Beefing up provisions should comfort, notwithstanding the immediate hit to profits as the lender is building protection against anticipated stress. Here is where LIC Housing Finance comes into more trouble.

Low on protection
View Full Image
Low on protection

Despite the provisions, its coverage ratio is 40%, far lower than most peers in the industry. The lender has a long way to go to give investors enough confidence on provisions. To be sure, the management has said that slippages going forward could reduce and that would bring down incremental provisioning needs.

But one look at the asset quality and the outlook becomes considerably uncertain.

LIC Housing Finance’s stage three loans, as a percentage of its book, rose to 4.12% in the March quarter from 2.86% in the year-ago period.

The weakest part of the loan book remains the project finance segment, and bad loans were a massive 18%.

“Furthermore, the company holds negligible provisions on early-bucket stressed assets," said HDFC Securities Ltd in a note.

Even as the quality of its loan book isn’t up to the mark, the outlook continues to be uncertain.

In an analyst call on quarterly earnings, the management said that collections have continued to hold up above 90% even in the months of April and May despite the covid-induced lockdowns. While this may augur well for asset quality, there is no numerical guidance from the lender.

What can lessen the pain on bad loan ratios is growth in the loan portfolio. The lender witnessed a bounceback and reported 18% growth in disbursements. “We expect the same bounceback in Q3/Q4 like last year, but with more intensity," said Y. Vishwanatha Gowd, managing director, LIC Housing Finance, during the call.

The lender will raise capital of 2,400 crore through fund infusion from promoter Life Insurance Corp. (LIC). Despite the 4% fall on Wednesday, shares of LIC Housing Finance have gained 17% since April.

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!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 16 Jun 2021, 09:30 PM IST
Next Story footLogo
Recommended For You
GENIE RECOMMENDS

Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

Let’s get started
Switch to the Mint app for fast and personalized news - Get App

Chat with MintGenie