The inherently strong demand in the housing-loan market has helped the performance of the market-leader HDFC in the September quarter. A 26 per cent growth in retail loans that contributes 70 per cent of HDFC’s loan book has been the main contributor to the incremental growth in the first half of 2013-14.
While the retail home loan segment continues to grow despite macro headwinds, the non-retail segment — comprising developer financing and other corporate loans — remains sluggish, logging only 8 per cent growth.
That said, the outlook for the industry for the next 3-5 years remains healthy on account of a strong demand from the mid-income group and favourable demographics.
Thus a robust growth in retail loans, and sustained market share will continue to drive HDFC’s core earnings. The loan growth of 21 per cent annually in the last two years is expected to sustain over the next 2-3 years.
While a strong brand image and deeper geographical presence have helped sustain its loan growth, HDFC’s diversified funding mix has aided in keeping the net interest margins (NIM) stable. Post the July liquidity tightening measures , short-term interest rates had shot up by 200-250 basis points, making fund-raising from bond issues more expensive. However HDFC raises funds from diverse sources, including banks , public deposits and bonds.
Flexibility to switch between these different resources has helped the company maintain its margins. HDFC’s share of funding from bond markets has come down in the September quarter when compared to that in the beginning of 2013-14. Similarly, the share of bank borrowings has risen to 19 per cent from 8 per cent in the same period.
This flexibility within resources will continue to drive stable margins over a long term.
While strong fundamentals drove the core income for HDFC, lower provisioning added fillip to earnings. The regulator — National Housing Bank — cut provisioning requirements of standard loans for residential housing. This has led to 60 per cent lower provisioning in the September quarter vis-à-vis last year.
Also, HDFC’s capital adequacy got a boost, to 19 per cent from 16 per cent last quarter, as NHB reduced risk weights on loans as well.
The company also maintained stable asset quality, well below 1 per cent of loans.