HDFC's net profit up 16% at Rs 3,700 cr in Q4; beats street estimates

Mortgage lender Housing Development Finance Corporation (HDFC) reported a 16 per cent increase in net profit in January-March quarter, aided by a rise in net interest income and lower provisions. Net profit of the lender totaled to Rs 3,700 crore in Q4FY22 versus Rs 3,180 crore in the year-ago period, beating street estimates. Analysts at Bloomberg had estimated a net profit of Rs 3,518 crore.

Net interest income of the lender increased by 14 per cent to Rs 4,601 crore in Q4FY22, aided by higher loan growth. The net interest margin of the lender for the year stood at 3.5 per cent.

It reported a 44 per cent drop in provisions for bad loans in the reporting to Rs 401 crore versus Rs 719 crore in the year-ago period.

The gross non-performing loans of the lender at the end of the March quarter as per the RBI’s November 12 circular stood at 1.91 per cent, with the gross individual NPLs at 0.99 per cent of the individual portfolio and the gross non-performing non-individual loans at 4.76 per cent of the non-individual portfolio. Sequentially, the gross NPLs are down by 41 basis points.

For the full year (FY22), the lender saw individual approvals and disbursements grew by 38 per cent and 37 per cent respectively compared to the previous year. March saw the highest ever monthly individual disbursements at Rs 20,944 crore, despite the fact that the previous year entailed concessional stamp duty benefits in certain states which were not there in the current year.

Individual loans grew by 17 per cent on an asset under management (AUM) basis to Rs 4.31 trillion and AUM grew by 15 per cent during the same time to Rs 6.53 trillion. The non-individual loan book has seen a pick-up in Q4, with 7 per cent year-on-year and 6 per cent sequentially. The lender has a strong pipe line of construction finance loans as well as in the lease rental discounting segment.

The overall loan book of the mortgage lender has swelled to Rs 5.68 trillion, up 14 per cent over last year and the total AUM has grown by 15 per cent during the same time to Rs 6.53 trillion.

Merger of HDFC, HDFC Bank

Keki Mistry, Vice Chairman & Chief Executive Officer (CEO), HDFC Ltd said, “We have over the years from time to time evaluated the option of merging HDFC – HDFC Bank. However, in the past, we found the cost of a merger to be high and hence did not proceed further”.

However, in recent years, due to a series of regulatory changes, the merger looked attractive, Mistry said.  

Last month, HDFC – HDFC Bank announced that the respective boards have approved an all-stock amalgamation of the former into the latter, subject to regulatory approvals, thus creating a banking behemoth.

The Reserve Bank of India (RBI) has progressively reduced the need to maintain CRR and SLR to 22 per cent. Secondly, interest rates are lower today so the negative carry, if any, on meeting any regulatory requirements on liquidity is much lower. Further, RBI now allows banks to hold PSL certificates and these certificates enable banks to achieve the PSL targets, without having to disbursal the loans. Further, the non-convertible bonds held by HDFC of nearly Rs 90,000 crore of original maturity of 7 years, will qualify as affordable housing bonds, subject to the regulator’s approval, and consequently would not require CRR, SLR, or PSL requirements.

“The merger will benefit the shareholders of both HDFC and HDFC Bank as lower cost of funds will be available for the mortgage business. The mortgage business has immense potential and hence the merger will enable the group to enhance its market share consequent to leveraging on the distribution network of HDFC Bank”, Mistry said.

“As per our estimates, 70 per cent of the customers of HDFC and its subsidiaries do not bank with HDFC Bank. Hence the merger will provide the ability to cross sell banking products to this large pool of customers”, Mistry added.

In addition, the merger will enable the delivery of home loan offering to a large base of 68 million customers of HDFC bank in a seamless manner. Today, only 8 per cent of the bank customers have a mortgage product and just 2 per cent of them have it from HDFC ltd.

Further, the value of HDFC will not be depressed by the holding company discount so far as it relates to the shares of the bank, Mistry said. The unrealized gains on HDFC Bank shares as of March 31, amounted to Rs 1.57 trillion. Consequent to the merger, the holding company discount will not be there and this will add Rs 62,000 crore to the market cap of the combined entity.