HDFC provisions up, no sign of unease

Results in line with estimates, provisions on watch

With most banks and non-banking financial companies meeting Street estimates for December quarter (Q3) results, Housing Development Finance Corporation (HDFC) was no exception. On a standalone basis, net interest income at Rs 2,770 crore and net profit at Rs 1,701 crore met estimates comfortably, up 17 and 12 per cent year on year, respectively. Like its peers, HDFC, too, saw its net interest margin rise to 4.1 per cent in Q3 from 3.9 per cent a year ago, as cost of funds continued to remain benign.
 
What's assuring is that the loan book as on December 31 grew 16 per cent at Rs 2,86,876 crore. While quite lower than its recent past performances, it is way ahead of estimates of 10-12 per cent for Q3. That said, the consumer or retail loan book grew at a slower pace in December quarter. While quarterly numbers aren't available, retail loans grew 15 per cent in the nine months ended December. Slower growth in retail loan book suggests demand stickiness due to demonetisation. Therefore, what helped beat estimates is the better-than-expected disbursals of non-consumer loans, up 17 per cent. Here again, better demand for lease rental projects buoyed business.
 
The key monitorable, though, is loan-loss provisioning and asset (loan) quality. Even as the cost of provisioning jumped 72 per cent year on year to Rs 117 crore, the gross non-performing assets (NPA) ratio for the quarter stood at 0.81 per cent versus 0.72 per cent a year ago. While retail loans posted gross NPA ratio of 0.65 per cent (versus 0.54 per cent a year ago), non-retail loans saw the ratio at 1.16 per cent (1.12 per cent in Q3 FY16). While these numbers don't inspire caution yet, the Street will monitor the data closely, given that its closest comparable peer, LIC Housing Finance, managed to curtail its gross NPA ratio at 0.56 per cent in Q3.
 
With real estate activities remaining subdued, analysts feel pain for HDFC, particularly from the non-retail loan book, could continue. Even for retail loan book, analysts will see how growth moves in March quarter, as currency in circulation is yet to normalise. So, while analysts are unlikely to change their stance on the stock, they will monitor loan growth and provisioning costs closely from here on.