In the housing loan business, Housing Development Finance Corporation (HDFC) is a giant with a loan book of Rs 4.5 lakh crore. The lender traditionally chooses its customers well.
That could explain the decent growth in loan approvals even in the fourth quarter that was tough for most lenders. Even then, the COVID-19 onslaught has shown its impact on HDFC’s numbers in Q4. A quarter of the total loan book is under moratorium and asset quality has worsened particularly on non-retail loans.
Take a look at some of the key numbers: about 26 percent of HDFC’s loan book is under moratorium. Retail loans under moratorium account for 21 percent of the individual loan portfolio.
Of the total loan book of Rs 4.5 lakh crore, about 76 percent are retail loans. The average size of the retail loan book is Rs 27 lakh. Non-performing assets (NPAs) of the lender has inched up with overall NPAs as a percentage of loan book at nearly 2 percent at March-end compared with 1.18 percent in the year ago period.
What is important to note here is the break up of NPAs and to identify the pain areas. The asset quality has worsened more on the developer loans which shot up to 4.71 percent from 2.34 percent. These are loans taken by developers for real estate projects and when the economy slowed, their business/cash flows got impacted. This portfolio is likely to remain under stress till economic scenario improves. This will take a while.
In the retail loan book, NPAs have risen to 0.95 percent from 0.70 percent. The lender has significantly increased its provisions in Q4 to around Rs 11,000 crore from Rs 5,880 crore in the year-ago period. It has made an additional provisioning of Rs 5,913 crore to counter the impact of COVID-19. The message here is that HDFC indeed expects pain going ahead due to COVID-19.
HDFC, as mentioned above, is a cautious lender while choosing its borrowers. Its retail borrowers are mostly salaried employees with large corporate houses. There is not much concern on this part. But, going ahead what it needs to watch is the performance of developer loans.
In Q4 there has been a big spike in NPAs from this segment. The sharp rise in NPAs here was attributable to exposure toward two or three large developers (around Rs 1700 crore).
“Though we remain comfortable toward HDFC’s coverage, further pain in asset quality is inevitable amid macro slowdown post-COVID-19,” Emkay research said in a note.
In Q4, HDFC has managed to grow retail loan approvals by 14 percent in terms of number of customers and 12 percent in value terms. It has also taken sufficient provisions, much above the regulatory requirements, anticipating tough times ahead.
During a briefing post the results, HDFC’s vice chairman and CEO, Keki Mistry said the lender couldn’t do much business in the second half of March on account of COVID-19 situation. As the lockdown is now extended till May 31 (and possibly beyond that), HDFC will see pressure on asset quality on developer loans going ahead and may see lower loan growth overall.