News Analysis

HDFC: Low delinquencies, steady growth in retail loans

Radhika Merwin BL Research Bureau | Updated on January 09, 2018 Published on October 30, 2017

Good show continues despite moderation in bank credit growth to the housing segment

Healthy growth in retail loans, stable margins, and steady asset quality, sum up the September quarter results for market leader Housing Development Finance Corporation (HDFC). The lender continued to put up a good show despite the moderation in bank credit growth to the housing segment in recent times.

Retail loans (including sale of loans to HDFC Bank) have grown by 23 per cent in the latest September quarter, despite the headwinds in the property market. The strong demand from the mid-income group has kept growth steady.

Non-retail inches up

Aside from the healthy growth in retail loans, HDFC’s non-retail segment too has been picking up in recent quarters. The growth has been led by lease rental discounting— loan against future rental receipts from lease contracts with corporate tenants. The growth in non-retail loans which inched up to 17 per cent in the December and March quarter, scaled up to 22 per cent in the June quarter. In the latest September quarter, the growth has inched up to 23 per cent.

HDFC’s ability to maintain low level of delinquencies over the years has been a key positive. The gross non-performing assets (GNPA) in the September quarter, only marginally went up to 1.14 per cent of loans from 1.12 per cent in the June quarter.

Steady spread

The competition in the housing finance industry has been intensifying over the past two to three years. Aside from established housing finance companies and NFBCs, commercial banks too have wanted a piece of the action, given their lacklustre growth in corporate lending and the fact that housing finance offers a low risk, consistent growth alternative.

Over the past one to two years, lending institutions have cut home loan rates by 1-1.2 percentage points. Despite the lower yield on loans, HDFC has managed to hold its spread (return on loans less cost of borrowings) steady. In the September quarter, the company’s spread on loans stood at 2.29 per cent, similar to the levels seen in the previous quarter and marginally higher than the same quarter last year.

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