The coronavirus pandemic is deepening the troubles of the real estate sector and this time, HDFC Ltd may not be able to escape this entirely. India’s largest housing finance company saw both its bad loan ratios and its loan growth get impacted in the March quarter.
Non-performing assets (NPAs) as a percentage of the loan book increased to 1.99%, with pressure on both individual and non-individual loan book. Indeed, bad loan ratio for the individual loan book rose to 0.95%, the highest in many years. Keki Mistry, vice chairman and chief executive officer (CEO) attributed this surge to inability to recover money from borrowers owing to the lockdown. “3% of our borrowers require to be physically contacted for repayments, we meet them for collections, which could not be done due to lockdown," Mistry said in a webcast after the results were announced on Monday.
The outlook on asset quality is not sanguine either given the pressure on employment and wages emerging in the wake of the lockdown. While the 0.95% ratio may look low compared with other housing finance companies and banks, it is one of the worst ratio by HDFC’s historic trend.
Even more troubling is the surge in non-individual loan book’s delinquencies. This ratio was 4.71% for the March quarter compared with 2.34% a year ago. But as the adjoining chart shows, the non-individual book has been under pressure for long now. Rise in inventories, plummeting sales and the drying up of liquidity since 2018 has impacted several realty developers. The lockdown has sucked out any demand or finance for developers as also stalled construction activity. By the virtue of its mortgage loan dominated book, HDFC may not be severely impacted. After all, mortgages have historically been the most safest lending business
But the individual loan book too is under pressure. Whats more is that the quality is now not clear given that 21% of the book is under moratorium. About 26% of the overall loan book is under moratorium. Considering the moratorium facility is now extended till 31 August, this could very well increase. The lender’s bad loan ratios could worsen in the coming quarters.
The lender has made adequate provisions towards risks and it set aside ₹1,274 crore for the March quarter. Mistry said HDFC is also keeping more liquidity on its balance sheet than before. Provisions along with low income from sale of investments and dividend from HDFC Bank resulted in the lender’s net profit falling 22% year-on-year. The drop in net profit may not perturb investors but the loan growth deceleration and the pressure on asset quality due to covid-19 should worry.
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