In Q2 FY20, Total Interest Income of the company increased by 10.36% from Rs.9,94, Cr in Q2 FY19 to Rs.10,478 Cr in Q2 FY20.
It is mainly because of the substantial growth in the loan book.
Net Interest Income (NII)
We can calculate, Net Interest Income= Total Interest Income – Interest Expended
NII for the quarter ended September 30, 2019 stood at Rs.3,021 Cr as compared with Rs.2,594 Cr in Q2 FY19, with a growth of 16.5%. It is the core income for the company.
Dividend Income has seen a sharp growth of 185% YoY, increased to Rs.1,073.8 Cr in Q2 FY20 from Rs.5.77 Cr in Q2 FY19.
Profit from Sale of Investments also added Rs.1,627 Cr to the Net Profit of the company from the part stake sale in Gruh Finance.
HDFC Ltd has reported a 61% Y-o-Y growth in standalone net profit at Rs.3,961 Cr for the September quarter of FY20. While, the housing finance firm had posted Rs.2,467 Cr profit in the corresponding quarter last year ie. in Q2 FY19.
Due to corporate tax rate cuts, the tax paid in Q2 FY20 is decreased by almost 35% from Rs.733 Q2 FY19 Cr to Rs.473 Cr in Q2 FY20. The net effect is improved profit after tax (PAT).
This is inclusive of 3 main heads :
Profit on sale of investments on part stake sale of GRUH Finance of Rs.1,627 Cr during the Q2 FY20
Dividend Income of Rs.1,073.8 in Q2 FY20
Corporate Tax Rate Cut Effect
Q2 FY20 Balance sheet summary and Key Ratios
As on September 30, 2019, the gross loan book stood at Rs.4,26,739 Cr as against Rs.3,81,950 Cr in the previous year, that is grown by 11.7% Y-o-Y.
The borrowings in Q2 FY20 is Rs.3,88,976 Cr increased at 14.2% Y-o-Y from Rs.3,40,622 Cr in Q2 FY19. While, if we consider the quarterly growth, borrowings are increased at 4.1% from Rs.3,73,629 Cr.
HDFC Ltd’s Capital adequacy ratio (CAR) was seen to be 19.6% in Q2 FY20 from 18.8% in Q1 FY20 and increased from 18.4% last year Q2 FY19. Thus, it is improved on Q-o-Q as well as Y-o-Y basis.
Net Interest Margin (NIM) remained flat Q-o-Q as well as Y-o-Y at 3.3%.
In Q2 FY20, HDFC Ltd has seen a slight deterioration in asset quality as a result of macroeconomic slowdown.
Gross NPA at 1.33% stood higher compared on Q-o-Q as well as Y-o-Y basis. Gross NPA was 1.13% in Q2 FY19 and 1.29% in Q1 FY20. So we can see the erosion in the asset quality.
Both Individual NPA and Non-individual NPA have seen a considerable growth in Q2 FY20 compared to Q2 FY19 and Q1 FY20.
Advances & Borrowings Mix
As we have seen above, the gross loan book of HDFC Ltd has seen a growth of 11.7% Y-o-Y and 2.4% Q-o-Q.
About 76% of its loan book comprises individual ie. retail loans and the remaining is corporate loans which includes commercial real estate loans, lease rental discounting, etc.
The major share in the gross loan book is of individual loans and it is increasing consistently year-on-year as well as quarter-on-quarter basis. Individual loans are contributing around 69%, 71% and 72% of the total gross loan book for the quarters Q2 FY19, Q1 FY20 and Q2 FY20 respectively.
On the other hand, corporate loans contribute around 26% of gross loan book in Q2 FY20, with a consistent decrease in its share in gross loan book, ie from 27% in Q1 FY20 and 29% in Q2 FY19.
Given the uncertainty and risk averseness in the lending environment for corporate or non-individual loans, the company opted to be prudent by imposing the restrictions on the segment. The slackened corporate loan growth is in-line with company’s stance of scaling down riskier portfolio.
Almost 76% of the loan book composition is tilted in favor of individual segment on which we can expect significant increase in competition in the housing loan space from banks. Thus, there will be increased competitiveness in the individual loans segment. As a result, the overall gross loan book growth will get impacted with continuous reduction in the corporate loan growth.
HDFC Ltd’s total Borrowings are comprised of :
Bonds/Debentures/Commercial Papers and
As we can see from the above graph, there is a gradual increase in the share of Term Loans from 18% to 23% to 22% in the quarters Q2 FY19, Q1 FY20 and Q2 FY20 respectively.
On the contrary, a consistent negative growth is seen in the share of bonds, debentures and commercial papers from 54% to 47 % to 47% in the quarters Q2 FY19, Q1 FY20 and Q2 FY20 respectively.
While the growth of deposits share was slightly growing, share was changed from 28% to 30% to 31% in the quarters Q2 FY19, Q1 FY20 and Q2 FY20 respectively.