HDFC disbursement growth back on track
HDFC’s loan disbursement growth was back on track in the June ’06 quarter, rising 28% YoY, to Rs 4,386 crore. Growth in disbursements was 25% in all quarters in the past five years, except the March ’06 quarter.
HDFC’s loan disbursement growth was back on track in the June ’06 quarter, rising 28% YoY, to Rs 4,386 crore. Growth in disbursements was 25% in all quarters in the past five years, except the March ’06 quarter. That had caused concerns of a slowdown in loan growth. The housing loan major is targeting a 25% growth in disbursements during ’07; a slowdown could affect profitability.
So far, there is no indication of that. Spread on loans was preserved at 2.14% during the June ’06 quarter compared to 2.16% in ’06. About 90% of new loans are on a floating rate basis, reducing its interest rate risk. Whether borrowers continue to prefer floating rate loans given expectations of high interest rates, however, remains to be seen.
HDFC increased interest rates by 100bps in ’06 and by another 50bps in May ’06. While net NPA is lower at 0.96% of portfolio, the company also wrote off Rs 22 crore in ’06 compared to Rs 8.3 crore in the previous year. The rising cost of borrowing could affect its spreads, though.
The company claims that its cost of borrowing has been 100bps above G-sec yields across tenures. For a term loan of 1 year, its borrowing cost has been in the range of 7.75-8%. Average cost of borrowing in ’06 was 6.5%. As long as rising interest costs are passed on to borrowers, profitability will not be adversely unaffected.
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