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Well covered for tighter norms
NHB, regulator for HFCs, will increase the standard and NPL provisioning
requirement for the sector as a precautionary step. As a result, standard
asset provisioning requirement would rise to 40bps on all loans (currently
only on non-retail loans); slab-rates for provision on NPLs have also been
raised. HDFC has been following a more conservative provisioning policy
with actual provisions being 140% of earlier requirement and the surplus
is higher than additional provision required against stock of exiting loans.
However, the provisioning requirement on incremental housing loans can
impact our earning estimates by near 1%. Maintain BUY.
Higher provisioning norms for HFCs
National Housing Bank (NHB), regulator for housing finance companies (HFC),
had announced plans to increase the provisioning requirement for the sector
in Jun-11 and these have been recently notified. As per the new norms, HFCs
will need to carry 40bps provision on all loans compared to current norm of
provisioning only on non-retail loans. Additionally, slab-rates for provision on
NPLs have also been raised. The increase is being done as a precautionary
step to ensure that companies carry sufficient buffers against potential risk of
asset quality slippages. Simultaneously, HFCs will also be permitted to reckon
standard asset provisions as part of their Tier II capital.
HDFC’s provisioning policy is conservative
In terms of the prudential norms as stipulated by NHB, HFC were required to
carry a provision in respect of NPLs and a general provision on standard nonhousing
loans, housing loans to non-individuals and dual-rate home loans.
HDFC has been following a more conservative provisioning policy and this
reflects in its stock of provision of Rs11.7bn (as on Jun-11) being higher than
the regulatory requirement of Rs8.4bn- surplus provision of Rs3.3bn. While
the mandatory provisions are provided through the P&L, additional provisions
are created by debiting reserves (as per Section 29C of NHB Act).
Negligible impact of new norms
We estimate that the additional standard asset provisioning requirement on
existing housing loans could be ~Rs1.7bn which will be covered-up by its
surplus provisions of Rs3.3bn. However going forward, HDFC may need to
charge a higher amount of provisions on standard loans and NPLs through the
P&L and this could have a near 1% impact on earning estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Well covered for tighter norms
NHB, regulator for HFCs, will increase the standard and NPL provisioning
requirement for the sector as a precautionary step. As a result, standard
asset provisioning requirement would rise to 40bps on all loans (currently
only on non-retail loans); slab-rates for provision on NPLs have also been
raised. HDFC has been following a more conservative provisioning policy
with actual provisions being 140% of earlier requirement and the surplus
is higher than additional provision required against stock of exiting loans.
However, the provisioning requirement on incremental housing loans can
impact our earning estimates by near 1%. Maintain BUY.
Higher provisioning norms for HFCs
National Housing Bank (NHB), regulator for housing finance companies (HFC),
had announced plans to increase the provisioning requirement for the sector
in Jun-11 and these have been recently notified. As per the new norms, HFCs
will need to carry 40bps provision on all loans compared to current norm of
provisioning only on non-retail loans. Additionally, slab-rates for provision on
NPLs have also been raised. The increase is being done as a precautionary
step to ensure that companies carry sufficient buffers against potential risk of
asset quality slippages. Simultaneously, HFCs will also be permitted to reckon
standard asset provisions as part of their Tier II capital.
HDFC’s provisioning policy is conservative
In terms of the prudential norms as stipulated by NHB, HFC were required to
carry a provision in respect of NPLs and a general provision on standard nonhousing
loans, housing loans to non-individuals and dual-rate home loans.
HDFC has been following a more conservative provisioning policy and this
reflects in its stock of provision of Rs11.7bn (as on Jun-11) being higher than
the regulatory requirement of Rs8.4bn- surplus provision of Rs3.3bn. While
the mandatory provisions are provided through the P&L, additional provisions
are created by debiting reserves (as per Section 29C of NHB Act).
Negligible impact of new norms
We estimate that the additional standard asset provisioning requirement on
existing housing loans could be ~Rs1.7bn which will be covered-up by its
surplus provisions of Rs3.3bn. However going forward, HDFC may need to
charge a higher amount of provisions on standard loans and NPLs through the
P&L and this could have a near 1% impact on earning estimates.
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