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● National Housing Bank (NHB), regulator for housing finance
companies (HFCs), has reportedly raised general provision (GP)
requirement for HFCs to 0.4% (similar to banks).
● For HDFC, this translates to additional provisions of Rs3.1 bn
(~2% of book value). However, HDFC currently carries Rs11.7 bn
provisions (against Rs9 bn NPLs & NHB prov. req. of Rs8 bn) and
these excess provisions will largely offset the new GP needs.
● Notably, Rs8 bn of provs. are now getting used up for GP (2% on
dual-rate & 0.4% on other loans) that implies specific cover at only
38% of gross NPLs. To reach 100% NPL cover, it would need topup
provisions of Rs5.4 bn (3.0% of book). HDFC should see about
Rs3.2 bn GP release over FY13 & FY14 as the dual rate converts
to floating rate loans, which will boost NPL coverage.
● While mortgage rates are up 175 bp over the past nine months,
with loan momentum still healthy, we expect HDFC’s EPS growth
to sustain at robust 20% over FY12-13. Core ROEs healthy at 24-
26% but mortgage business at 17xFY12EPS, 3.8x B/V. NEUTRAL
GP requirement of 0.4%
The RBI working group has also made recommendations that
prudential norms for NBFCs should be brought in line with that of
banks (banks have 0.4% GP on mortgages). Assuming HDFC
maintains 100% NPL cover, this translates to an additional Rs5.4 bn
(3.0% of book value). However, HDFC currently has a provision of
Rs4.0 bn on teaser loans and Rs3.2 bn of it shall be released by April-
12 as it moves from dual rate to normal loans.
Even as HDFC has raised lending rates 175 bp over the past nine
months, with affordability still robust (particularly outside metros), it is
confident of maintaining loan growth (gross) at 20%+ levels in FY12
and the medium term. Lending rate hikes and the fact that it runs no
ALM mismatches should help HDFC maintain stable spreads (2.2-
2.3%). HDFC is confident of stable asset quality (0.8% gross NPLs).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● National Housing Bank (NHB), regulator for housing finance
companies (HFCs), has reportedly raised general provision (GP)
requirement for HFCs to 0.4% (similar to banks).
● For HDFC, this translates to additional provisions of Rs3.1 bn
(~2% of book value). However, HDFC currently carries Rs11.7 bn
provisions (against Rs9 bn NPLs & NHB prov. req. of Rs8 bn) and
these excess provisions will largely offset the new GP needs.
● Notably, Rs8 bn of provs. are now getting used up for GP (2% on
dual-rate & 0.4% on other loans) that implies specific cover at only
38% of gross NPLs. To reach 100% NPL cover, it would need topup
provisions of Rs5.4 bn (3.0% of book). HDFC should see about
Rs3.2 bn GP release over FY13 & FY14 as the dual rate converts
to floating rate loans, which will boost NPL coverage.
● While mortgage rates are up 175 bp over the past nine months,
with loan momentum still healthy, we expect HDFC’s EPS growth
to sustain at robust 20% over FY12-13. Core ROEs healthy at 24-
26% but mortgage business at 17xFY12EPS, 3.8x B/V. NEUTRAL
GP requirement of 0.4%
The RBI working group has also made recommendations that
prudential norms for NBFCs should be brought in line with that of
banks (banks have 0.4% GP on mortgages). Assuming HDFC
maintains 100% NPL cover, this translates to an additional Rs5.4 bn
(3.0% of book value). However, HDFC currently has a provision of
Rs4.0 bn on teaser loans and Rs3.2 bn of it shall be released by April-
12 as it moves from dual rate to normal loans.
Even as HDFC has raised lending rates 175 bp over the past nine
months, with affordability still robust (particularly outside metros), it is
confident of maintaining loan growth (gross) at 20%+ levels in FY12
and the medium term. Lending rate hikes and the fact that it runs no
ALM mismatches should help HDFC maintain stable spreads (2.2-
2.3%). HDFC is confident of stable asset quality (0.8% gross NPLs).
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