Hdfcs Power Show
Considering that sanctions grew by only 13 per cent in the first half of 1997-98, this is a remarkable improvement in performance.The strong growth in sanctions could be partly due to falling real estate prices combined with lower interest rates leading to a revival in demand for housing finance. Moreover, the rise in disposable incomes will contribute to a rise in demand for housing. The housing finance segment was also the only financial sector to have shown healthy growth in 1997-98.
The sharp jump in sanctions is very vital for HDFC's growth. Loan sanctions to corporates and developers have been consciously lowered to protect against defaults. To maintain growth, business generated from individual homes became necessary for HDFC. This also explains the fast pace at which HDFC is opening new branches and service centres across the country in the current year.
In the first half of 1997-98, the loan sanctions and disbursements to individual homes were up by around 25 per cent and 32 per cent, respectively.
In the nine months ended December 1997, this percentage went up to 44 and 37 per cent respectively. This fast acceleration growth is imperative as individual loans are definitely less riskier than loans to corporates or developers. However, spreads on these loans are relatively lower and profit growth can be sustained only by higher volumes. With commercial banks slowly muscling their way into the housing finance market, the existing players need to brush up their act to meet the competition head on.
Disbursements, however, registered only a 21 per cent growth in the third quarter, against a 25 per cent growth in the first half. Since disbursements typically lag sanctions as loans are disbursed in accordance with the progress on the dwelling, disbursements are likely to see a sharp improvement in the third quarter. This will also ensure that HDFC posts a reasonably good performance in 1997-98. The slower growth in disbursements affected operational income too which was up only 7.82 per cent in the third quarter against a 18 per cent growth achieved in the first half of 1997-98. A higher level of disbursements in the third quarter is likely to result in better revenue growth.
Aided by falling interest rates, growth in the cost of funds too has been relatively low at 7 per cent. This ensured that the drop in income did not adversely affect profit growth. While gross profits were higher only by 6.56 per cent, mainly due to a 57 per cent jump in other expenses, net profit growth was higher in the third quarter at 14.71 per cent, chiefly aided by a lower tax liability.