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Traction in home loans continue; asset quality improves ex. RBI circular impact

Our view

HDFC posted a strong performance in Q3 FY22 with sustained solid traction in individual loans (portfolio up 5% qoq/16% yoy) and an improvement of 90 bps in PAR 30 and 20 bps in Gross NPLs (ex. RBI circular impact). NIM/NII growth was impacted to an extent by liquidity build‐up on the balance sheet for LCR requirement. High collection efficiency during the quarter drove material correction in 30+ dpd in both individual loans (50 bps) and non‐individual loans (140 bps). Recategorized loans due to RBI November circular were Rs27.6bn (51 bps of loans); 30 bps within individual loans and 120 bps in non‐individual portfolio. Due to reduction in 30+ portfolio, the credit cost was modest at annualized 27 bps. Spread/NIM would likely remain stable even in an increasing interest rate environment due to floating nature of individual loan portfolio. 

There are no material changes in our FY22‐24 EPS/BV estimates as co.’s performance was on expected lines. However, any significant pick‐up in the non‐individual loan products over coming quarters would open‐up space for raising growth and margin assumptions. Further, an improving scenario forrecoveries/resolutions ofthe stressed non‐individual loans would positively influence credit cost with co. holding conservative provisions. We continue to believe that HDFC is well‐placed to benefit from a structural housing market upcycle due to robust distribution and execution architecture (bolstered by origination tie‐ups). The stand‐alone mortgage business is available at 1.8x FY24 P/ABV, adjusting for the value of holdings in group entities. Maintain BUY and with 12m PT of Rs3320.

Key Result Highlights

* Individual loan disbursements grew by 48% yoy in 9m FY22. Co. recorded 2nd highest ever monthly disbursements in December. Overall AUM grew by 3.6% qoq/12% yoy.

* Credit cost for the quarter was lower, reflecting improved collection efficiency and 20 bps improvement in Gross NPLs excluding the 50‐bps addition due to RBI November circular.  

* PAR 30 portfolio shrunk by 6%+ qoq, a significantly higher pull‐back than Q2 FY22. As against revised regulatory required provisions of Rs74.5bn, the co. is carrying Rs132bn.  

* OTR pool static at 1.34% of loan book as of Dec. It has come down to 1.24% as of Jan with recovery from one large non‐individual account which would be settled soon.    

* Spread on individual loan book was 1.93% (stable qoq) and on the non‐individual book was 3.25% (10 bps lower qoq). 

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