HDFC Ltd Financial Results for the Quarter Ended June 30, 2017 Standalone and Consolidated

Performance Highlights

  • 18% growth in the overall loan book on an Assets Under Management (AUM) basis for the quarter ended June 30, 2017
  • 16% growth in Net Interest Income  
  • Net interest margin at 4% per annum, spread on loans at 2.29% per annum 
  • 15% growth in standalone Profit Before Tax and Sale of Investment  

The Board of Directors of Housing Development Finance Corporation Limited (HDFC) announced its unaudited standalone and consolidated financial results for the first quarter of the financial year 2017-18, following its meeting on Wednesday, July 26, 2017 in Mumbai. The accounts have been subjected to a limited review by the Corporation’s statutory auditors in line with the regulatory guidelines.
 
STANDALONE FINANCIAL RESULTS
 
The profit numbers for the quarter ended June 30, 2017 are not comparable with that of the quarter ended June 30, 2016.
 
In the quarter ended June 30, 2016, the Corporation sold shares of HDFC ERGO General Insurance Company to ERGO International AG, a subsidiary of Munich Re for a consideration of Rs 922 crore and had also created a one-time special provision of Rs 275 crore as a charge to the statement of profit and loss.
 
The reported profit before tax for the quarter ended June 30, 2017 stood at Rs 2,359 crore compared to Rs 2,700 crore in the corresponding quarter of the previous year.
 
After considering the above-mentioned one-time transaction, the adjusted profit before tax for the quarter ended June 30, 2016 stood at Rs 2,053 crore. The profit before tax for the quarter ended June 30, 2017 stood at Rs 2,359 crore, representing a growth of 15% over the corresponding quarter of the previous year.
 
The effective tax rate for the quarter ended June 30, 2017 was higher at 34.0% compared to 30.7% in the corresponding quarter of the previous year. This was because the stake sale of unlisted shares of HDFC ERGO in the corresponding quarter of the previous year attracted long-term capital gains tax at a lower rate of 23.07% compared to the marginal corporate tax rate. We expect the tax rate to significantly reduce in the subsequent quarters on account of dividend income and sale of investments.
 
As a consequence of the above, the reported profit after tax for the quarter ended June 30, 2017 stood at Rs 1,556 crore as compared to Rs 1,871 crore in the corresponding quarter of the previous year.
 
LENDING OPERATIONS
 
Individual loan disbursements grew by 21% during the quarter. The average size of individual loans stood at Rs 26.3 lac. 
 
On an Assets under Management (AUM) basis, the growth in the individual loan book was 16% and the non-individual loan book was 23%. The growth in the total loan book was 18%.
 
As at June 30, 2017, individual loans comprise 72% of the AUM. During the quarter, 64% of incremental loans came from individual loans and 18% each from Commercial Lease Rental Discounting and Construction Finance.
 
As at June 30, 2017, the loan book stood at Rs 3,12,978 crore as against Rs 2,65,731 crore in the previous year.
 
During the quarter, the Corporation sold individual loans amounting to Rs 2,922 crore. Of this, Rs 2,458 crore was assigned to HDFC Bank pursuant to the buyback option embedded in the home loan arrangement between the Corporation and HDFC Bank and Rs 464 crore was assigned to another bank. In respect of the loans assigned to the other bank, the residual income is 3% per annum.
 
As at June 30, 2017, the outstanding amount in respect of individual loans sold was Rs 42,044 crore. HDFC continues to service these loans and is entitled to the residual income on the loans sold. The residual income on the individual loans sold stood at 1.26% per annum and is being recognised over the life of the loans and not on an upfront basis.
 
Total loans sold during the preceding twelve months was Rs 13,841 crore as against Rs 14,011 crore in the previous year.
 
The growth in the individual loan book, after adding back loans sold in the preceding 12 months was 23% (16% net of loans sold). The non-individual loan book grew at 22%. The growth in the total loan book after adding back loans sold was 23% (18% net of loans sold). 
 
Non-Performing Loans (NPL)
 
In June 2017, the Reserve Bank of India’s Internal Advisory Committee identified various accounts for reference under the Insolvency and Bankruptcy Code, 2016. The Corporation has an exposure of Rs 909 crore as at June 30, 2017 in one of these accounts. As at March 31, 2017, though the account was not a non-performing loan, as a prudent measure, the Corporation had made adequate provisioning against this exposure. Thus, no further provisioning was required on this exposure for the quarter ended June 30, 2017.

Gross non-performing loans as at June 30, 2017 including the above-mentioned account amounted to Rs 3,513 crore. This is equivalent to 1.12% of the loan portfolio. The non-performing loans of the individual portfolio stood at 0.65% while that of the non-individual portfolio stood at 2.09%. Excluding the above-mentioned account and its beneficiaries, the non-performing loans stood at 0.80% of the loan portfolio and the non-performing loans of the non-individual portfolio is 1.12%.
 
As per National Housing Bank norms, the Corporation is required to carry a total provision of Rs 2,646 crore of which Rs 1,667 crore is against standard assets and Rs 979 crore towards non-performing assets. 
 
As against this, the balance in the Provision and Contingencies Account as of June 30, 2017 amounted to Rs 3,150 crore. This is equivalent to 1 per cent of the loan portfolio.
 
Further, it may be noted that for housing finance companies, standard asset provisioning on individual housing loans for the time being continues at 40 basis points compared to 25 basis points for banks.
 
Spread, Net Interest Income & Margin
 
The spread on loans over the cost of borrowings for the quarter ended June 30, 2017 stood at 2.29% compared to 2.26% for the quarter ended June 30, 2016. The spread on the individual loan book was 1.90% and on the non-individual book was 3.18%.
 
The net interest income for the quarter ended June 30, 2017 stood at Rs 2,793 crore compared to Rs 2,418 crore in the corresponding quarter of the previous year, representing a growth of 16%.
 
Net Interest Margin for the quarter ended June 30, 2017 was 4%, the same as in the corresponding quarter of the previous year.

INVESTMENTS
 

As at June 30, 2017, the unrealised gains on HDFC’s listed investments amounted to Rs 93,923 crore (previous year Rs 64,375 crore). This excludes the appreciation in the value of unlisted investments.
 
CAPITAL ADEQUACY RATIO
 
The Corporation’s capital adequacy ratio stood at 14.7%, of which Tier I capital was 12.1% and Tier II capital was 2.6%. Deferred tax liability on Special Reserve and the investment in HDFC Bank has been considered as a deduction in the computation of Tier I capital. As per the regulatory norms, the minimum requirement for the capital adequacy ratio and Tier I capital is 12% and 6% respectively. 
 
CONSOLIDATED FINANCIAL RESULTS
 
For the quarter ended June 30, 2017, the consolidated profit after tax stood at Rs 2,734 crore as compared to Rs 2,797 crore in the corresponding quarter last year.
 
The share of profit from subsidiary and associate companies in the consolidated profit after tax stood at 43% for the quarter ended June 30, 2017.
 
DISTRIBUTION NETWORK
 
HDFC’s distribution network spans 432 outlets which include 131 offices of HDFC’s distribution company, HDFC Sales Private Limited (HSPL). HDFC covers additional locations through its outreach programmes. Distribution channels form an integral part of the distribution network with home loans being distributed through HSPL, HDFC Bank Limited and third party direct selling associates.
 
To cater to non-resident Indians, HDFC has offices in London, Dubai and Singapore and service associates in Kuwait, Oman and Saudi Arabia.

Amol Wagh

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