HDFC Q4: Loan growth slows owing to Covid-19-led disruption

The housing finance sector that has been reeling under the liquidity crisis over the past year, has taken a further knock over the past two months, amid the Covid-19-induced lockdown. Significant slowdown in disbursements, weak real estate demand and disruption in collection activity have impacted the sector at large. For market leader Housing Development Finance Corporation (HDFC), that has managed to tide over the volatile times over the past year thanks to its sound business model and discipline in asset liability management (ALM), the pandemic outbreak has understandably impacted growth and created uncertainty.

In the latest March quarter, HDFC’s total loan book (on AUM basis) grew by 12 per cent YoY, down from 14 per cent in the December quarter. Growth in individual or retail loan book (excluding sale of loans to HDFC Bank) stood at 14 per cent in the March quarter, down from 16 per cent in the December quarter. Disbursement growth too slowed to 7 per cent from 13 per cent recorded in the previous quarter.

According to the management, while growth until March 15 was robust, it slowed considerably in the latter part of March when the lockdown was imposed. Given that the second half of March is typically a strong growth period for the company, the Covid-19 crisis had a substantial impact on disbursements.

That said, even as uncertainty persists, HDFC’s market leadership, diversified funding base, and strong balance sheet should hold it in good stead. As such, the company has been cautious towards lending to the developer segment over the past year, which has been a prudent move. In the March quarter, loan growth in the non-individual segment remained muted at 6.5 per cent.

A major portion of the company’s incremental growth continues to come from the retail segment. During FY20, 89 per cent of the incremental growth in AUM came from retail loans. HDFC’s focus on the affordable housing segment has also aided growth. During FY20, 36 per cent of home loans approved in volume terms and 18 per cent in value terms have been to customers from the Economically Weaker Section (EWS) and Low Income Groups (LIG).

Bad loans rise

On the asset quality front, HDFC has witnessed a notable uptick in bad loans to ₹8,908 crore as of March 2020, from ₹5,950 crore in the December quarter. In the retail segment, the GNPA ratio moved up to 0.95 per cent of loans from 0.75 per cent in the December quarter. This was mainly due to disruption in collections. While 97 per cent of the customers use electronic modes of repayment, 3 per cent are still done through physical visits. The management believes that once normalcy returns post lockdown, collections should normalise.

On the non-retail front, the GNPA ratio shot up to 4.71 per cent from 2.91 per cent in the December quarter. This was owing to two accounts, which according to the management were not technically NPAs but were downgraded due to the stress in the accounts.

It will be important to see how the asset quality in the non-retail book pans out in the coming quarters. HDFC’s healthy provisioning and strong capital ratios are however, positives.

The company made additional provisions related to Covid-19 in the March quarter. For FY20, additional provisioning including provisioning for the impact of Covid-19 was ₹5,913 crore (₹935 crore in the previous year).

HDFC’s total capital adequacy ratio stood at 17.7 per cent and Tier 1 at 16.6 per cent as of March 2020.