HDFC's pre-tax profit down 27% in Q4 due to higher provisioning for Covid

After adjusting for fair value adjustments, profit on sale of investment, dividend and provisioning, the adjusted profit before tax for the quarter ended March 31, 2020 is, Rs 3,535 crore

Mortgage lender Housing Development Finance Corporation (HDFC) on Monday reported a 27 per cent decline in profit before tax (PBT) at Rs 2,692 crore in the March quarter of 2019-20 because of higher provisioning for uncertainties due to the Covid-19 pandemic. Its PBT was Rs 3,691 crore in the same period a year ago.

The lender’s net profit declined 22 per cent to Rs 2,233 crore in the fourth quarter, compared to Rs 2,862 crore in the year-ago period.

It made provisions of Rs 1,274 crore in the quarter, up 220 per cent from Rs 398 crore in the same period last financial year, because of Covid-19. Around 26 per cent of the lender’s loan book is under moratorium. In the individual loan segment, 21 per cent of the loan under management is under moratorium.

Keki Mistry, vice-chairman and chief executive officer of HDFC, doubted more people would opt for the moratorium. “People had time till May end to take the moratorium. So, whoever wanted to take the moratorium has already taken it,” he said. The RBI last week extended moratorium on term loans for another three months to August end.

After fair value adjustments, profit on sale of investment, dividend, and provisioning, the profit before tax for the quarter grew 15 per cent at Rs 3,535 crore, as against Rs 3,064 crore in the year-ago period, the lender said.

The non-performing assets (NPAs) of the lender rose to 1.99 per cent in Q4FY20, compared to 1.18 per cent in Q4FY19. While individual loans segment saw ratio of bad loans rising 25 basis points to 0.95 per cent from 0.70 per cent, the non-individual segment a steep rise in bad loans ratio to 4.71 per cent from 2.34 per cent.

Mistry said they downgraded two non-individual loans despite them not being an NPA because they saw some stress in these loans. Had they not shown these loans as NPAs, the NPA in non-individual segment would have been 3.7 per cent. As far as individual loan segment is concerned, 97 per cent of its customers use electronic modes of repayment for their instalments. However, in respect of 3 per cent of borrowers, where follow-ups would have otherwise been done through personal visits, this was not possible owing to the lockdown. Recovery efforts were hampered in the latter half of March 2020, which resulted in an increase in individual non-performing loans, HDFC said.

The total loan book of the lender grew 12 per cent to Rs 5.16 trillion while the individual loan book grew 21 per cent. The corporation's capital adequacy ratio stood at 17. 7 per cent, of which Tier I capital was 16.6 per cent. “The good part is every day we are seeing a rise in the amount we are disbursing. But still we are nowhere close to normal. My sense is that the first quarter will be very weak, second quarter will be better than the first quarter, third quarter will be even better and fourth quarter will be 85-90 per cent normal,” said Mistry.

“At senior level, there will be some cut in bonuses. For us, it’s business as usual but we are not hiring any new people at the moment. If six months later, business picks up then we will look to hire people, he added.