L&T Finance Holdings Q2 net profit rises 8.4%

Rise in credit costs cap profit growth

L&T Finance Holdings today said its consolidated net profit for the quarter ended September 30, 2013 increased by 8.4% from a year earlier to Rs 155.7 crore as it improved margins, expanded retail finance business and reversed the losses in investment management operations.

For the lending business, net interest margin for the quarter improved by 10 basis points from a year ago to 5.6%. The company reported healthy disbursement growth in its rural product finance, personal vehicle finance and housing finance businesses.

The investment management operations earned a profit of Rs 1.7 crore in July-September period compared to a loss of Rs 8.4 crore in the corresponding period of last year.

The growth in profit after tax, however, was capped on account of rise in credit costs in the wake of deterioration in asset quality. "The current environment has pushed up our credit costs. For the last two quarters, it has been around 1.5% of our assets as compared to 0.6-0.7% earlier," N Sivaraman, president and whole-time director of L&T Finance Holdings, told Business Standard.

Gross non-performing assets (NPAs) were at Rs 992.9 crore or 2.89% of gross advances at the end of September, 2013. A quarter ago, it was Rs 846.4 crore or 2.54% of gross advances. The increase in gross NPAs was mainly due to one account in the infrastructure segment. The gross bad loans also include Rs 92.9 crore (net of write-off) in FamilyCredit, mainly contributed by legacy portfolio.

Net NPAs increased to Rs 654.6 crore or 1.93% of gross advances at the end of the quarter from Rs 551 crore or 1.67% of gross advances a quarter earlier.

"We have been cautious in lending for the last 24 months. The stress on construction companies engaged in the infrastructure segment continues to remain very high and we expect it to continue for at least one more quarter. But on the retail side, we expect improvement in coming quarters," Sivaraman said.

The total loans increased by 28.2% year-on-year to Rs 35,459 crore at the end of September, 2013.