A high growth in loan book and improving asset quality were the key features of HDFC’s financials in the June ’10 quarter. This news comes good for investors, as the mortgage company has managed to lend more without sacrificing its asset quality. Often, finance companies find it difficult to tread the path.

The company grew its loan book by 23% year-on-year in the June ’10 quarter. The robust double-digit growth follows the 22% growth in the March ’10 quarter and 18% in the quarter before. The company has stepped up disbursements to individual borrowers, which grew by 62% in the June ’10 quarter. This shows that the resurgence witnessed in housing finance business in the second half of the previous fiscal continues in the current financial year as well.

The profits, were driven by a surge in individual loans. Individual approvals for the quarter rose 56% while individual disbursements saw a 62% jump compared to the corresponding quarter in the previous year. The high growth rates are also partly reflective of a lower base in the previous year following the prolonged impact of the financial crisis. Overall approvals rose 30% to Rs 15,996 crore while disbursements were up 25% to Rs 10,863 crore. The company’s loan book grew 23% to Rs 101,625 crore from Rs 87,046 crore in June 2009. In the last 12 months, the company sold loans worth Rs 5,636 crore and the 23% growth includes loans sold during the year.

Net non-performing assets (NPA) improved marginally from 0.58% of advances a year ago to 0.54% at the end of the June ’10 quarter. This reflects HDFC’s high asset quality, which is also one of the best among non-banking financial companies (NBFCs). Low NPAs should relieve the company of asset quality concerns, thereby expanding its loan book. This can be treated as a pointer towards high growth in the coming quarters as well.

HDFC reported a 23% profit growth in the June ’10 quarter, which is comparable to its growth rates in the past three quarters. However, there was a one-time gain amounting to Rs 51 crore on account of profit from sale of investments during the year-ago quarter. Excluding this, its profit growth would swell to 32% in the June ’10 quarter, the highest in any of the past four quarters.

The company had to face an aggressive competition in the home loan segment from the country’s biggest bank, SBI (State Bank of India), which offered low interest rate. Further, the competition was intense from other banks as well. A bigger home-loan portfolio tends to improve the overall asset quality since housing finance is a secured form of lending; hence the incentive to provide more home loans.

Such a fierce competition had created concerns among industry trackers about HDFC’s ability to retain its leadership in the industry. The latest numbers show that HDFC can continue to maintain its growth despite competition on account of an insatiable demand for housing in the country and HDFC’s wide reach to cater to this demand.

Going ahead, HDFC may not find it difficult to keep its growth momentum intact. This is because a gradual improvement in the domestic economy is expected to propel commercial banks into unsecured lending such as HDFC credit cards where yield is higher than the home loan segment. This may ease the competition in the mortgage industry helping the pure-play mortgage players such as HDFC.

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