HDFC's net profit rises 18% in Q2 on robust loan growth

Mortgage lender Housing Development Finance Corporation Ltd (HDFC) reported a net profit of Rs 4,454.24 crore for the July-September quarter, a year-on-year (YoY) increase of 17.8 percent on the back of robust loan growth.

The housing finance company's total interest income was Rs 13,142.93 crore, a growth of 24.2 percent from the year-ago period. Total revenue from operations was Rs 15,027.21 crore, up from Rs 12,215.95 crore in the year-ago period.

HDFC’s loan book grew 16 percent YoY on asset under management basis. The individual loan book grew by a faster 20 percent to Rs 5.89 lakh crore, the lender said in a release. This is the fastest individual loan book growth in eight years for the lender.

Affordable housing has been a key driver of loan growth.

Non-individual loan book was largely flat as the lender saw a higher rate of prepayments. “While we continue to have a pipeline of non-individual loans, we also have prepayments which resulted in lower growth in this segment,” said Keki Mistry, vice chairman and managing director of the lender in a post-earnings call.

Mistry also explained that the disbursement of construction finance loans was staggered and the segment may see growth in the coming months also.

The healthy loan growth lifted net interest income by 13 percent to Rs 4,639 crore for the July-September quarter.

Stable margins, too, helped keep net interest income healthy. HDFC’s loan spreads were 2.28 percent for the September quarter, while the net interest margin was 3.4 percent.

“The Corporation has increased its benchmark lending rates and has incrementally shifted from a quarterly reset for individual loans to a monthly reset to reduce the impact of transmission of rate changes,” the lender said.

Another contributing factor to strong profit growth was improved asset quality. The lender’s provisions, however, were at Rs 423 crore for the quarter, up from Rs 133.8 crore provided a year ago.

As of September, the company held an outstanding provision of Rs13,146 crore against the total Rs 9,355 crore worth of bad loans.

Gross bad loans as a percentage of the book were down to 1.59 percent compared with 2.24 percent in the year-ago period. Bad loans were higher for the non-individual book at 3.99 percent of the book.

Mistry said as asset quality continues to improve, the lender’s provisions would reduce and credit costs come down progressively in the coming quarters.

Together with strong interest income and lower provisions, HDFC’s operating profit grew by a healthy 17 percent to Rs 10,004 crore.

Merger process

Mistry said all approvals for the merger with HDFC Bank had been received. When asked if the lender would have to shed some loans to merge with the bank, Mistry said most loans on HDFC's balance sheet were allowed to be underwritten by banks. "Loans we do are loans that banks do. We don’t do anything that banks do not do with some exceptions," he said.

That said, some loans might not pass the test but the amount involved would be minimal, he added.

In April, HDFC Bank said it would merge parent HDFC Ltd with it in a deal worth $40 billion. For every 25 shares of HDFC, 42 shares of the bank would be allotted. After the amalgamation, HDFC Bank would be fully held by public shareholders and HDFC shareholders would hold a 41 percent stake in the bank.

The share closed at Rs Rs 2,479 on the National Stock Exchange, down 1.2 percent.