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LIC Housing Finance Ltd’s June-quarter earnings showed that the impact of the second covid wave on asset quality was more than that of the first wave last year. Bad loans showed a spike, necessitating an increase in provisions.

In the June quarter, the lender set aside 830 crore towards impairment costs, which included around 750 crore worth provisions towards bad loans. With this, the lender has doubled its outstanding provisions towards bad loans to 4,727 crore over one year.

The lender has also provided 657 crore specifically towards pandemic-linked stress. But despite all this beef up, the provision cover has come down steadily and stood at 34% as of June.

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This is a worry as another potential wave of the pandemic could create challenges for the lender.

As such, stage-three assets stood at 5.93% of the total, a jump of 1.81 percentage points from the previous quarter. What’s more is that stage-two assets, which are loans where repayment is overdue for two months, rose to 5.38%.

The lender has also restructured more loans during the June quarter, and this pile stands at 5,353 crore or 2.3% of the loan book.

To be sure, analysts had expected an increase in the restructured loan pile. The source of stress has been predominantly in its developer book, but lately, retail home loans, too, have been showing signs of pain.

Of the total restructured book, 650 crore is retail loans.

The lender has said that with collections improving in June to 98% and the focus on recovery, further stress may be limited.

Even as the pain increased, LIC Housing Finance has not been lucky in finding growth. Widespread regional lockdowns across states due to the second covid wave had halted business during the first two months of the June quarter.

Analysts at Jefferies India Pvt. Ltd point out disbursements have fallen by 60% on a sequential basis. Project loan disbursements were down 80%.

To be sure, the lender has been pruning its project loans owing to rising defaults there. The share of these loans is now down to 6.7% from 7% a year ago.

Clearly, the recovery seen in the previous two quarters has come to a halt due to the second wave. Therefore, net interest income dropped 15% sequentially and was flat from a year ago. This, along with the rise in provisions, resulted in net profit missing Street estimates by a mile.

Shares of LIC Housing Finance fell more than 4% on Thursday following the earnings announcement. Shares have been under pressure since June on asset-quality concerns.

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