Moneycontrol
Jul 26, 2017 09:35 PM IST | Source: Moneycontrol.com

Rs 909-cr exposure to Essar Steel spikes HDFC’s non-performing assets

Keki Mistry said HDFC will file the red herring prospectus for HDFC Life IPO by October and aims to launch the issue this year itself

ByBeena Parmar
Rs 909-cr exposure to Essar Steel spikes HDFC’s non-performing assets

Exposure of Rs 909 crore to the large notorious insolvency account Essar Steel pushes HDFC’s non-performing assets higher at Rs 3,513 crore, or 1.12 percent of total loans.

The mortgage lender Housing Development Finance Corporation (HDFC), which reported a second straight decline in quarterly profit, disclosed that it has provided for 25 percent of the exposure and may increase the same unless it gets settled at the National Company Law Tribunal (NCLT).

Essar Steel, a non-performing asset (NPA) with HDFC, is one of the 12 accounts identified by the Reserve Bank of India to be admitted to the NCLT for insolvency proceedings under the Insolvency and Bankruptcy Code.

Keki Mistry, Vice-Chairman and Chief Executive Officer said, “The minimum 50 percent provision requirement applicable for banks does not apply to us…We had made provisions for it (Essar Steel) much in advance. We made 25 percent provisions and would increase it unless it gets settled before that.”

Mistry said the Essar Steel account is an old loan given for building a housing colony and some other work at their units.

HDFC Life and Net Profit

In the first quarter of FY18, HDFC’s net profit fell 16.8 percent to Rs 1,556 crore in the three months ended June over the comparable quarter last year.

The profit reduced because of a higher base in the year-ago period, when it had made a one-time gain from selling a stake in its subsidiary HDFC ERGO General Insurance Company to partner ERGO International AG. On an adjusted basis, the net profit before tax is up 15 percent.

Mistry said, because of the Essar Steel loan, the NPA now stands at 1.12 percent of total loans. Excluding Essar Steel account, its gross NPAs would have been at 0.80 percent, almost similar to 0.79 percent in the June quarter last year.

The profit after tax was also impacted by the high tax rate this quarter at 34 percent compared to 30.4 percent last year as this quarter had less dividend income and no profit on sale of investments. This reduced the profit after tax.

“We expect a sharp decline in tax rate as we would look to sell some of the shares of HDFC in the offer for sale of HDFC Life which will not carry capital gains tax as it will become a listed entity,” Mistry said.

HDFC will file the red herring prospectus for HDFC Life IPO by October and aims to launch the IPO this year itself.

On growth, Mistry said, “Very clearly, the effect of demonetisation is completely behind us. The new business each month is much higher…April to June saw 24 percent jump over last year in demand for new home loans. So, the momentum or push for people to buy homes is high.”

On a monthly comparison, Mistry said the new home loans in February saw 11 percent growth over last February, March and April saw 40 percent rise each over March and April 2016, May saw 27 percent and June saw 24 percent increase over last year.
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