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Once realty starts improving, HDFC to press growth accelerator: Keki Mistry

Keki Mistry, VC & CEO, HDFC, says since HDFC has more profits, the housing finance major has been extremely conservative about provisioning and for the quarter and has allocated Rs 2,995 crore for provisioning. It is much higher than what HDFC would need to provide if NHB guidelines with regard to periods of defaults were to be followed.

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Last Updated: Jan 28, 2020, 02.08 PM IST
Our trust in affordable housing loans continues unabated: Keki Mistry, HDFC
Our trust in affordable housing loans continues unabated: Keki Mistry, HDFC
HDFC reported a 8.5% growth in net interest income while profits were largely bumped up because of an one-time gain. Barring this one-time gain, how would you classify profits for the quarter gone by?
This one-off gain that you are talking about is something which was disclosed to the market in January itself. In the early part of January, in the declaration we made to the stock market, we had mentioned that our shares in Gruh got converted into Bandhan Bank and consequently there would be Rs 9,000 crore mark to market gain on those shares. This is done because of an accounting requirement.

Since we have more profits, we have been extremely conservative in our provisioning and for the quarter we have allocated Rs 2,995 crore to the P&L account for provisioning. I would say that from an operational perspective, it was a very good quarter. Our trust on affordable housing loans continue unabated. If we look at this quarter, 18% of the loans we give in value terms and 36% in number terms were to customers who are in the lower income group or in the economically weaker section.

Our average loan amount to customers in the economically weaker section was Rs 10.2 lakh and to customers in the lower income group was Rs 17.6 lakh. That is as far as the operational part is concerned. Demand continues to remain good in the affordable housing segment. Spreads remain more or less the same as they were in the last quarter. The spreads in the September quarter were 2.26% and spreads as of December stood at 2.27%, there was a 1 bps change in spreads. Net interest margin remained almost exactly what it was. NIM has remained stable for a long time. It was 3.3% in March, 3.3% in September and remains at 3.3% in December.

Non-performing loans moved up slightly compared to what it was in the September quarter. In the September quarter, we had non-performing loans of 1.33% and in December, the non-performing loan stands at 1.36%. We have been extremely prudent, extremely conservative in our provisioning. It is much higher than what we would need to provide if we strictly follow the NHB guidelines with regard to period of default.

You mentioned that you have been extremely prudent and conservative in provisioning. Going forward, what is the provision coverage ratio that you are targeting and will you continue to be conservative?
We have always been conservative in our provisioning and we continue to remain so. I would even go to the extent of saying that 36% of the loans for which we have provided are loans with zero default. We want to be that much more cautious and we created provisions on those accounts. I will say we have been extremely prudent in our provisioning policy.

Your gross net NPA saw a marginal increase on a sequential basis. What is the reason for that? What are the asset quality trends that you are seeing both in retail as well as developer loan portfolios?
If we look at the breakdown of the non-performing loans between individuals and non-individuals out of the 1.36% of gross non-performing loans, individual gross non-performing loan number is 0.75% and non-individual non-performing loan number stands at 2.91%. If we were to look at this number last quarter, in the individuals category, it would have been 0.73% and non-individuals would have been 2.87%. So there is a 2 bps inching up in the individual category and a 4 bps increase in the non-individual category with an overall increase of 3 bps. 3 bps means 0.03%.

Disbursements witnessed a growth of 13% year on year led by the retail segment. Would individual loans continue to dominate your portfolio? Where do you see the share of developer loan book dropping?
Making a futuristic statement is very difficult but I can tell what happened in the past. Individual loans on a balance sheet basis, constitute 76% of our loans and corporate loans constitutes 5%; developer loans constitute 11% and lease rental discounting loans constitute 8%. That is the split of the loans on a balance sheet basis. If we were to look at incremental growth for the third quarter, then 81% of the growth came on individual loans and 19% came on non-individual loans.

In the 9-month period of April to December, as much as 90% came on individual loans and 10% came on non-individual loans. Almost six quarters ago, we had guided the market to say that we would be extremely cautious with non-individual loans and therefore over a period of time, there would be a reduction in the level of non-individual loans. We have done that. Having said that, we have our foot close to the accelerator and whenever we find the market sentiments have improved and things are looking up for the real estate sector, we will press the accelerator and take that growth much faster.

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