The Centre’s demonetisation move was expected to have a big impact on the real estate market, leading to correction in home prices and slackening of demand, and hence pain to housing finance companies (HFCs).

But market leader HDFC (Housing Development Finance Corporation) continued its steady performance in the latest December quarter. The company’s 17 per cent growth in core net interest income was led by about 16 per cent growth in total loans (net of loans sold to HDFC Bank).

HDFC’s healthy loan growth has been driven by higher growth in its non-retail segment.

This segment, which has been impacted by the overall slowdown in the market, has been inching up in recent quarters. In the December quarter, in particular the growth in this segment was led by lease rental discounting — a loan against rental receipts from lease contracts with corporate tenants.

Overall, the growth in non-retail loans stood at 17 per cent year on year in the December quarter, up from 13 per cent in the September quarter.

In the retail loan segment, growth slowed marginally, but remained healthy.

After growing by 17 per cent in the September quarter, retail loans (net of loans sold to HDFC Bank) grew 15 per cent in the December quarter.

The management stated that there was some slowdown in loan enquiries in the December quarter, but there has been an uptick in January. While demonetisation could lead to buyers deferring purchases on expectation of correction in prices, over the long run, the growth for HDFC is likely to be in good stead.

Dominant leadership position in the housing finance market has been a key reason for the company’s healthy growth in the last couple of years.

HDFC’s retail loan book has grown at a rate which is at least 5 per cent above banks’ growth in this segment. Also, demonetisation taking a toll on home prices will have a greater impact on players that have grown their loan book by price increases rather than volumes.

For HDFC, though, the growth in its retail loans (about 23-25 per cent over the last three years) has mainly been driven by volumes. Currently, HDFC’s average loan size is about Rs 25.7 lakhs. Besides as transparency in deals increase, loan amount can move up substantially.

One of the key strengths of HDFC is its ability to diversify its source of funding. This has aided margins in the past. The large liquidity in the system post demonetisation has led to a sharp fall in rates, resulting in lower cost of funds.

The company’s spread loans (return on loans less cost of borrowings) have gone up marginally in the December quarter. The spread has moved up from 2.28 per cent in the September quarter to 2.34 per cent in the December quarter.

HDFC’s gross non-performing assets (GNPA) in the December quarter has marginally gone up to 0.81 per cent of loans from 0.76 per cent in the September quarter. The 5-odd basis points sequential increase has been across retail and non-retail segment.