HDFC Bank’s NBFC arm sees bad loans double in three months

The second COVID wave exacerbated asset quality metrics for non-bank financial companies with HDB Financial Services the NBFC arm of HDFC Bank saw its gross bad loans almost triple in a year. The bank on Saturday said that it’s non-bank lender posted gross non-performing asset ratio of 7.75% at the end of June 30, 2021 against 2.86% same period a year ago. The bad loans doubled in just one quarter showed a sequential comparison of numbers. The GNPA ratio was at 3.89% as on March 31, 2021.

“Since HDB is catering to a customer segment which is one or two notches below, the pandemic has had a huge impact on them purely because of supply side constraints,” said Sashidhar Jagdishan, MD, HDFC Bank. “The research done by our credit team suggests that the casualties of customers is 4-5 times higher than we see on a normal basis, that’s extremely unfortunate. But, this is a temporary phenomenon and it will recover when normalcy returns, our customers are not wilful defaulters.”

Jagdishan also added that they were not looking to monetise HDB Financial in the near future and would wait for the situation to evolve.

“We may try to discover price eventually but in the medium term we would like to wait and see how it recovers when it moves in a normal environment, at that point in time we would look to list it on the exchanges,” he said.

HDB Financial Services also saw a sharp fall in its net profit by almost 44% to Rs 130.6 crore at the end of the June quarter versus Rs 232.7 crore same time a year ago. The non-bank lender also posted net income of Rs 1,655.8 crore as against Rs 1,609.7 crore for the quarter ended June 30, 2020.

“The country being hit by a “second wave” of COVID-19, business activities remained curtailed for almost two thirds of the quarter,” the bank said in a statement. “These disruptions led to a decrease in loan originations as well as efficiency in collection efforts. This has resulted in muted business volumes, revenues, as well as a higher provisioning.”

As on June 30, 2021, HDFC Bank held 95.1% stake in HDB Fin. The non-bank lender offers a wide range of loans and asset finance products to individuals, emerging businesses and micro enterprises.

Provisions and contingencies for the quarter under review were at Rs 472.4 crore as against Rs 453.5 crore for the quarter ended June 30, 2020. The total loan book grew by a little over 1.5% in a year to Rs 57,390 crore at the end of the June quarter as against Rs 56,613 crore same period last year.

Liquidity coverage ratio was healthy at 242%, well above the regulatory requirement. Total capital adequacy ratio (CAR) was at 19.8% with Tier-I CAR at 14.9%. As on June 30, 2021, HDB Financial had 1,321 branches across 957 cities and towns.