Housing Development Finance Corporation (HDFC), a well-known housing finance company, reported its December quarter numbers. Concerns about rising interest rates have clouded the outlook for financial service providers, particularly lenders. The quarter has seen slower growth in HDFC’s net interest income.
HDFC’s net interest income rose by 15% to Rs 1,156 crore in the December quarter, over last year. Net interest income is the difference between interest earned and interest paid, and reflects the real or net income of a lender. In the September quarter, HDFC’s NII had risen by 28% in the September quarter.
HDFC Ltd’s interest income rose by 16.4% while its interest expenses rose by 15.9%.
Apart from interest income, it also earns money from investments, and in the December quarter, it earned profit on investments of Rs 167 crore, more than triple the Rs 51 crore earned in the December 2009 quarter. This was a key reason for propping up total income, which rose by 20%.
HDFC kept staff expenses and other expenses under check, and these heads grew at a lower rate than its income.
The company’s effective tax rate during the quarter fell to 26.5% compared to about 30% in the year ago period. Its profit after tax rose by 33%, rising to Rs 881 crore as a result, much higher than the 27% growth in profit before tax.
Demand for the company’s loans has not slowed down, rising by 27% compared to 22% in the September quarter. Its total loan book was Rs 109,051 crore compared to 106,287 crore at the end of the September quarter.
The quarter also saw the introduction of new provisioning rules by the housing finance sector regulator, the National Housing Bank. In a circular dated December 24, it had specified that housing finance companies have to make a 0.4% on all housing loans, not given to individuals. And, on teaser loans with dual interest rates, which had become a hit in 2010-11, they have to make a provision of 2% of loans.
This requirement was partly met by HDFC, by utilising Rs 272 crore from the additional reserve maintained under Sec 29c of the NHB Act, 1987. This may represent the portion representing teaser loans given in preceding quarters, which the company has chosen to provide on the balance sheet itself. Otherwise, it would have had affected its profit growth during the quarter.
This article will be updated with more analysis later, as more information becomes available.