Locked in by interest rate hikes, HFCs see net profit drop 19% in Q2

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Listed housing finance companies (HFCs) as a group posted a 3.7% decline in second quarter (Q2) profit year-on-year (YoY) to Rs 5,830 crore and 19% sequentially due to the increase in interest charges and the increase in provisions and write-offs.

Operating profit increased by 13.7% year-on-year to reach Rs 54,086 crore in the second quarter of 2022-23 (FY23). Sequentially, revenue grew by 62.3% from Rs 33,331 crore in the first quarter (Q1) of 2021-22 (FY22).

The increase in operating income reflects the solidity of the mortgage loan portfolio and the rise in lending rates. Lenders were able to pass on some of the increase in the policy rate, HFC executives observed.

The policy’s repo rate has increased by 190 basis points in the year to date. Additionally, another rate hike is expected by the Reserve Bank of India at its December policy meeting.

Among major mortgage lenders, LIC Housing Finance’s total loan portfolio grew by 10% year-on-year to reach Rs 2.62 trillion in September this year.

Loans from Can Fin Homes increased by 22.23% year-on-year to reach Rs 28,482 crore at the end of September.

Rating agency ICRA, in a report, said HFCs saw portfolio growth of 11% in FY22. Loan portfolio is expected to grow 10-12% in FY22. exercise 23.

While HFCs saw a net revenue stream, they also had to shell out more to raise funds amid tight liquidity conditions and the rising cost of money. This was evident from a 21.8% year-on-year increase in interest expense to Rs 15,635 crore in Q2FY23 and sequentially at 10.3%, from Rs 12,832 crore in Q1FY23, according to data from Capitaline. .

With stringent regulatory standards and focus on improving credit profile, provisions and write-offs increased by 86.5% year-on-year to Rs 2,546 crore in Q2FY23. Sequentially, provisions and write-offs increased by 161%, from Rs 975 crore in Q1FY23.

ICRA, in its review of HFCs, said asset quality indicators should see some improvement. In addition, the steady growth of the industry’s portfolio and profitability, together with good provision coverage, will protect margins.

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