Focus on individual house buyers pays off for the mortgage major amidst an economic slump
Housing Finance Development Corp (HDFC) on recently met expectations with a 12 % increase in the 3rd quarter net profit, as demand for loans from individual house buyers remained healthy despite a slowdown in the economy.
Net profit for the 2013 October-December period rose to Rs. .1,278 crore from Rs. 1,140 crore a year earlier, the countrys oldest mortgage lender HDFC said.
Net interest margin (NIM) ,or the difference between funding costs and interest earned on loans,was nearly flat at 4 % compared with 4.06 % a year earlier. Net interest income, which is comparable with revenue for companies in other sectors, rose about 16% to Rs.1,829 crore.
While demand for funds has slowed in a weak economy, the housing finance sector has remained somewhat insulated. Individual house buyers, who are driving this demand, have also been repaying their home loans regularly, helping lenders offset slippages in other loan categories.
For instance, at HDFC, bad loans in the retail portfolio fell to 0.57 % in the December quarter from 0.62 % a year earlier. This helped limit its overall non-performing assets (NPA) which rose to 0.77 % of total loans from 0.75 % despite NPA in the non-individual segment almost doubling to 1.81 %.Vice-chairman Mr. Keki Mistry said the lender HDFC will focus more on growing its individual loan book. We expect the loan book to grow in the range of 18% to 20 %, he said. Mistry predicted its cost of funds to remain flat because interest rates are expected to remain stable.H
DFCs total outstanding loans grew 19.5 % to more than Rs.1.92 lakh crore at the end of December.
Most of the housing finance companies, including HDFC and LIC Housing Finance (LIC HFL), have seen growth in home loan portfolio, said Mr. Kajal Gandhi, a banking analyst, ICICI Securities.
We have a positive outlook on the sector. But competition is intensifying, with banks aggressively targeting the house buyer at a time when demand for funds from other segments of India is low.
HDFC has managed to maintain its net interest margin because of its sheer size and good liability management, said Mr. Gandhi.Rikesh Parikh, vice-president of institutional corporate broking at Motilal Oswal Securities, said HDFCs plan to focus on smaller cities to boost growth in a slowing economy is a positive sign.
According to him, HDFCs asset quality has remained healthy over the past many quarters and the trend is likely to continue. The lenders capital adequacy ratio for the quarter ended December was 19.1 % compared with 17.5 % a year earlier.
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