Home >Markets >Mark To Market >LIC Housing Finance bears the brunt of the pandemic and dull real estate
What is more worrying is that the lender’s provisions against these bad loans have reduced from the year ago period. (Mint)
What is more worrying is that the lender’s provisions against these bad loans have reduced from the year ago period. (Mint)

LIC Housing Finance bears the brunt of the pandemic and dull real estate

The pandemic’s troubles come even as the lender has been battling high credit costs and rising stress on its books

LIC Housing Finance’s March quarter performance reflected the prolonged pain in the real estate sector as also the emerging challenges due to the coronavirus pandemic.

The housing finance company reported a 39% drop in net profit, far higher than the 20% fall estimated by analysts in a Bloomberg survey. Core operating performance too was tepid with net interest income falling by 9% from the year-ago period.

Graphic: Satish Kumar/Mint
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Graphic: Satish Kumar/Mint

The loan book growth slowed to 8% year-on-year from double-digit growth in the previous quarters. That is because of a 34% fall in total disbursements, led by an 80% decline in disbursements to developers. To be sure, the lower disbursals to developers is also by design as the lender has turned cautious on these loans over the past few quarters.

For LIC Housing Finance, the share of developer loans stood at 6.8% as of March. Another category that worries is loan against property.

For the lender, such loans form 16.3% of its loan book. Delinquencies in this category tend to rise faster than other categories during stress in the economy.

It is clear that the lender is losing money on dud loans and such loans are rising. Bad loans where repayments were 90 days past due rose to 2.83% of its loan book, up from 1.58% a year earlier.

What is more worrying is that the lender’s provisions against these bad loans have reduced from the year-ago period.

This does not augur well for the company as it is exposed to risks in the future. Further, the lender has said of the total equated monthly instalments (EMI) it receives, 25% are under moratorium now.

The Reserve Bank of India allowed banks and non-bank lenders to extend an interest holiday of three months to borrowers, which was later extended to six months. The moratorium muddles an already weak asset quality outlook for LIC Housing Finance.

The coronavirus pandemic troubles come even as the lender has been battling high credit costs and increasing stress on its books. Indeed, investors seem to have taken note of this. LIC Housing Finance shares have dropped 35% so far this year.

The concerns over the pandemic are also visible. Analysts have already cut earnings per share estimates for the lender and these could be revisited again in the light of the crisis. The stock trades at a discount to its estimated book value for FY21, pricing in most of worries over asset quality.

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