HDFC profit up on home loan demand

Mistry says the only cause of worry for the lender amid global economic uncertainty was a possible loss of consumer confidence.

Mumbai: India’s oldest mortgage lender, Housing Development Finance Corp. Ltd (HDFC), posted a 10.14% increase in profit during the three months ended 31 December on sustained demand for home loans, but fell short of analyst expectations as it earned less from the sale of investments.

Net profit in the fiscal third quarter rose to Rs. 981.25 crore from Rs. 890.88 crore in the year-ago period, HDFC said on Thursday. The lender missed the estimate of 15 analysts polled by Bloomberg, which had pegged its net profit at Rs. 1,010 crore. Earnings per share increased to Rs. 6.56 from Rs. 5.91 in the year-ago period. Revenue increased 35% to Rs. 4,472.51 crore from Rs. 3,321.04 crore.

HDFC shares ended up 0.9% to close at Rs. 687.50 on BSE on a day the Sensex fell marginally by 0.86%.

The reason behind HDFC’s lower-than-expected net profit was a drop in profit from sale of investments to Rs. 87.99 crore from Rs. 167.22 crore in the year-ago quarter.

Keki Mistry, vice-chairman and chief executive officer, told television channels that demand for home loans continues to be strong despite a slowdown in some markets, including Mumbai. “We have seen a 19% rise in both approvals and disbursements in the first nine months to December and our loan book has grown 21%,” he said.

HDFC’s loan book expanded to Rs. 1.32 trillion from Rs. 1.09 trillion in December 2010, even after it sold loans worth Rs. 4,221 crore, Mistry said.

“If we had not sold those loans, the growth would have been stronger at 25%,” he said. The mortgage lender has agreements with HDFC Bank Ltd and IndusInd Bank Ltd to sell home loans.

HDFC’s corporate loan growth, inclusive of loans sold, was 25%, while retail loans increased by 26%, indicating that demand for loans is coming from both individuals to buy properties as well as builders to construct projects, said Ankit Ladhani, an analyst at Sharekhan Ltd.

“The results are in line with our expectations of Rs. 993 crore net profit. Going forward, given HDFC’s track record and the fact that demand for homes continues, they should not find it difficult to meet their 18-20% target,” he said.

About two-thirds of HDFC’s loans go to individuals, with the remaining lent to builders as project finance.

Mistry said loan approvals increased at a slightly faster pace in the quarter ended December, which led to an average of 19% growth in both approvals and disbursements.

“In the first six months, loan approvals grew 18%, while disbursements rose by 19%. This time approvals have risen 20%, while disbursements have kept pace at 19% growth,” he said. HDFC did not give absolute numbers for loan approvals and disbursements.

The lender’s net interest income (interest earned minus interest expended) increased 18% to Rs. 1,235 crore from Rs. 1,040 crore a year ago, while its net interest margin (NIM) was 4.3% in the three months to December, Mistry said.

“NIM has been stable at 4.3% all through the year and though we do not expect it to change in the last quarter of the fiscal, next year it could improve as interest rates are likely to fall,” he added.

NIM is the difference between the rate of interest charged for loans and that paid for funds, and is considered a key measure of a financial firm’s profitability.

Another critical efficiency parameter is the portion of non-performing assets (NPAs) as a percentage of assets. For the 28th consecutive quarter, HDFC’s gross NPAs dropped. In percentage terms, it is 0.82% of assets, down from 0.85% a year ago.

Amid global economic uncertainty, the only cause of worry for the firm is a possible loss of consumer confidence, Mistry said.

“So far it’s been good and we have maintained our guidance, but if people lose confidence that they will keep their jobs, then that could have an impact on home demand,” he said.

HDFC has met its guidance because of sustained home loan demand from across the country even though markets such as Mumbai and Gurgaon have slowed, Mistry said. Source: Mint

Not only you, auto, real estate players will feel the pinch too

TNN | Aug 12, 2011, 02.52AM IST; MUMBAI: While hitting individuals, the higher rates are also likely to impact the auto and real estate sectors, where demand is directly linked to the cost of funds for individuals. A 50 basis points hike will increase the equated monthly installment on a 20-year home loan of Rs 10 lakh by around Rs 342.

With inflation inching close to double digits, there are chances that the RBI may increase rates again in future. However, some bond dealers feel that given the decision by the US Fed to keep rates near zero and the likelihood of a sustained slowdown in West, RBI may choose to pause. This view is reflected in the prices of government bonds. Banks which are lending at 8% in the interbank market are willing to invest in 10-year bonds at a yield of 8.2%. A uniform yield across a long tenure indicates that lenders anticipate a slowdown. At the same time, banks are also not increasing long-term deposit rates with the same measure as short-term rates as they are uncertain of the demand for loans.

The rate increases come at a time when industry bodies have been pleading with the central bank to cut interest rates in the wake of the US downgrade. "The trend of declining commodity prices since the rating downgrade also augurs well for a RBI rate cut. The Reuters-Jefferies CRB commodities index is now at an eight-month low on global growth fears, the perfect foil for a RBI rate cut as fuel alone accounts for over 15% of the WPI and the government is already talking of a cut in petrol prices if crude prices decline further," said the Federation of Indian Chambers of Commerce and Industry in a statement.

The country's largest housing finance company, HDFC, had already raised rates by 50 basis points last week.

Real Estate will be affected by internal problems not global issues: DLF

KP Singh, Chairman of realty major DLF recently said that the Indian real estate will be seriously affected if lending rates for home loans continue to rise unabated. “He said that real estate sector will be affected no because of the current global issues but because of our internal problem which is rising interest rate” Singh told reporters when asked about the impact of financial crisis in US on the domestic real estate sector.

Key policy rates (repo rate and reverse repo rates) have been enhanced 11 times by RBI since last March to control inflation which has forced banks to increase the lending rate sharply on home loan as well as loans to developers.

He was of the view that if the interest rates keep going up the way they are going, the real estate sector is going to suffer. He further observed “Now, the focus is to contain inflation which is right but too much emphasis on inflation is not good for growth,”.

Addressing the company’s shareholders at the annual general meeting last week, he had said: “A sustained level of high inflation and interest rates…Have impacted economic growth and moderated the growth in our industry as well.” On the proposed central draft Land Acquisition Bill, he said it is good as it takes into account the compensation and the rehabilitation of land owners. However, he said the “government must retain the power to acquire land for public purposes.”

SBI, ICICI hike loan rates to 15-year highs

TNN | Aug 12, 2011, 12.45AM IST;  MUMBAI: The misery keeps piling up for borrowers. Bank lending rates have moved close to a 15-year high, with the country's largest lender, State Bank of India, and ICICI Bank increasing their benchmark rates by 50 basis points. The rate hikes are in response to the increase in policy rates by the Reserve Bank of India on July 26. 

SBI said it would increase the interest on fixed deposits of 6-9 months by 5bps to 7% and maintained rates on all other maturities. SBI's benchmark prime lending rate (PLR) now stands at 14.75%. The last time it was at this level was in October 1996. The base rate, which applies to borrowers who have availed loans after July 2010, has also been increased by 50 basis points to 10%.

In case of ICICI Bank, the floating reference rate, which is the benchmark for retail loans and the I-bar-the benchmark for corporate loans-have both been increased by 50 basis points to 15.75% and 18.75%, respectively. The country's largest housing finance company, HDFC, had already raised rates by 50 basis points last week.

While hitting individuals, the higher rates are also likely to impact the auto and real estate sectors, where demand is directly linked to the cost of funds for individuals. A 50 basis points hike will increase the equated monthly installment on a 20-year home loan of Rs 10 lakh by around Rs 342.

With inflation inching close to double digits, there are chances that the RBI may increase rates again in future. However, some bond dealers feel that given the decision by the US Fed to keep rates near zero and the likelihood of a sustained slowdown in West, the RBI may choose to pause. This view is reflected in the prices of government bonds. Banks which are lending at 8% in the interbank market are willing to invest in 10-year bonds at a yield of 8.2%. A uniform yield across a long tenure indicates that lenders anticipate a slowdown. At the same time, banks are also not increasing long-term deposit rates with the same measure as short-term rates as they are uncertain of the demand for loans.

The rate increases come at a time when industry bodies have been pleading with the central bank to cut interest rates in the wake of the US downgrade. "The trend of declining commodity prices since the rating downgrade also augurs well for a RBI rate cut. The Reuters-Jefferies CRB commodities index is now at an eight-month low on global growth fears, the perfect foil for a RBI rate cut as fuel alone accounts for over 15% of the WPI and the government is already talking of a cut in petrol prices if crude prices decline further," said the Federation of Indian Chambers of Commerce and Industry in a statement.

Rise in lending rate leads to low value property deals

The third hike in repo rates by the Reserve Bank of India since May this year is driving buyers to go for properties with lower price tag. As per figures compiled by the office of the inspector-general of registrations (IGR), 1,98,206 property registration documents were processed in April 2011 which earned the state a revenue of Rs 985.47 crore. In contrast, the office processed 2,11,388 documents in May, but the revenue dipped to Rs 781.48 crore. This drop could be attributed to decrease in spending capacity of the buyer who has been forced to pay more interest following the Reserve Bank of India’s decision to revise repo rates on May 3.

June reported slight rise in revenue collection, but it was still lower than the April figures. The IGR processed 1,86,196 property documents adding Rs 846.25 crore to the exchequer. “These figures are still being verified,” said inspector general of registration and controller of stamps S Chockalingam. “The situation is not very bad, as last year the department had set a revenue target of Rs 10,000 crore but the actual earning in financial year 2010-11 was Rs 14,099 crore. The target was achieved by December 2010 itself. The government has taken decisions to control inflation, but after a certain extent, property deals will take place,” said Chockalingam.

Satish Magar, Pune-Maharashtra president of Confederation of Real Estate Developers of India (Credai) said, “The government on one hand promotes affordable housing schemes and on the other hand increases interest on home loans. This shows the contradictory nature of the Union government’s stance. Real estate is the second largest employment generating sector, which will be hit by the decision to increase repo rate. Out of total price of a flat, some 36% amount goes as tax to the government. What purpose government and RBI are serving by increasing repo rate, which always has a negative impact on the market? How can inflation be controlled by increasing interest rates of home loans?” Magar also said that such decisions are badly affecting the middle class, which is the largest segment in the country.

According to Mukund Abhyankar, former chairman of Cosmos Cooperative Bank, “Since March 2010, the RBI is increasing repo rates regularly which has badly affected property deals. The dip in the revenue in May this year indicates how it has affected the property markets in the state.” “The increase in the repo rate has direct impact on flat buyers who are looking for flats with the size of one bedroom-hall-kitchen or two-BHK, but of a smaller size. Generally, these flats cost around Rs 50 lakh in Pune city. These are the customers, who are going to suffer a lot as their schedule of repayment will be affected. There are more customers in this category than the high-value flat category, who are anyway going to make their investments. So the rising repo rates do not have any bearing on them,” Abhyankar said.

On the implications of the decision of RBI, he said, “There is no coordination between the Union government and the RBI over measures for controlling inflation. The repo rate was increased to control the spending for which RBI withdrew money from the market. But the Union government spends thousands of crores on various subsidies and grants which ultimately enters the market and dilutes the repo rate increase decisions. There are other ways to control the inflation, but neither the RBI nor union government are implementing them for some unknown reasons.”

Housing Sector will face Funding Gap of USD 70 billion in Next 5 Years: CREDAI

The Confederation of Real Estate Developers’ Association of India (CREDAI), an apex body of organised real estate developers in the country, has estimated that the sector will face a funding gap to the tune of USD 70 billion over the next five years. CREDAI President Lalit KumarJain said such a situation might create hurdles for the industry to grow if the Reserve Bank of India is not “proactive”.

“The housing that is required in the current Five-Year Plan is 24.6 million and it is 37 million in the next Five-Year Plan. We require USD 3.2 trillion (to meet the target). Funding gap in housing will be around USD 70 billion in the next five years. The USD 70 billion is among the current developers only,” Jain told PTI. He was speaking ahead of the third edition of the National Association of Realtors (NAR)-India Convention 2011, a two-day convention and exposition set to begin here today.

“Foreign investments do not solve the problem. They are very costly and cannot be affordable. There has to be generation of funds internally and RBI has to be proactive on this issue,” Jain added. He said any FDI into the country would expect a 30 per cent return on investment, which is not possible in real estate projects and hence not advisable.
The RBI only allows real estate companies to tap external commercial borrowings (ECBs) for township projects spread over a minimum 100 acres of land, Jain said, adding that small players cannot go for ECBs.