The second Covid wave exacerbated asset quality metrics at non-bank financial companies (NBFCs), with HDB Financial Services, the NBFC arm of HDFC Bank, reporting an increase of three times in its gross bad loans in a year.
The bank, India’s most valuable, on Saturday said that its non-bank lender posted a gross non-performing asset ratio of 7.75% at the end of June 30, against 2.86% in the same period a year ago. Bad loans doubled in just one quarter, a sequential comparison of numbers showed. The GNPA ratio was at 3.89% as on March 31, 2021.
HDB Financial Services also saw a sharp fall in its net profit by almost 44% to ₹130.6 crore at the end of the June quarter versus ₹232.7 crore same time a year ago.
The non-bank lender also posted net income of ₹1,655.8 crore against ₹1,609.7 crore for the quarter ended June 30, 2020.
“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 Jagdihan, 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.
As on June 30, 2021, HDFC Bank held 95.1% stake in HDB Financial Services. 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 ₹472.4 crore against ₹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 ₹57,390 crore at the end of the June quarter against ₹56,613 crore in the 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.