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HDB Fin’s Challenges May Continue For Now

 


HDFC Bank’s stellar performance in the July-September quarter notwithstanding, the impact of uncertainty for financial services reflected in its non-banking financial unit HDB Financial Services which serves clientele with a lesser credit profile.

The unit saw a quarter of sub-par asset quality and credit growth as its loan growth decelerated, net interest income declined, profit slumped drastically and bad loans increased.

“HDB’s portfolio is vulnerable due to focus on self-employed segments and micro enterprises, which has been impacted more than salaried segments,” said Gautam Chhugani, director, India financials at Bernstein, a research house. “The trend of consolidation and higher provisions could continue longer than at the parent bank.”

Pressure on the non-bank lender may also reflect in the share price of HDFC Bank, said another analyst.

“While HDFC Bank has performed ahead of expectations, HDB Financial continues to reel under pressure,” said Rajiv Mehta, lead analyst, Yes Securities. “HDB constricts any material price target upgrade for the bank.”

For HDB Financial Services, the total loan book grew 2.3% year-on-year to ₹57,014 crore from ₹55,759 crore. Net interest income fell to ₹924.2 crore from ₹971.1 crore in the previous quarter.

Profit after tax for the quarter nosedived to ₹29.9 crore from ₹213.0 crore in the previous quarter. Asset quality was under pressure, with gross and net non-performing assets at 4.3% of gross advances and 3.1% of net advances respectively. The lender also increased its liquidity buffers, with liquidity coverage ratio at 214%.“The operating parameters were quite weak, both on the loan growth side and bottom line. Going by the numbers I feel the listing of the company would get delayed, and as long as demand doesn't pick up and asset quality doesn’t improve it won’t be wise for HDB Financial Services to hit the market,” said Siddharth Purohit, analyst, SMC Institutional Equities.

Sandip Ginodia , CEO

ALTIUS INVESTECH PVT LTD

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