Business Wire IndiaPERFORMANCE HIGHLIGHTS
- 18% growth in the overall loan book on an Assets Under Management (AUM) basis for the quarter ended June 30, 2018
- 25% growth in individual loans (after adding back loans sold in the preceding 12 months)
- 37% of home loans approved in terms of numbers during the quarter are towards the Economically Weaker Section & Low Income Group[1]
- 20% growth in Net Interest Income
- Spreads at 2.28%, Net Interest Margin at 3.5%
- Under Ind AS, Profit After Tax (Before Other Comprehensive Income) stood at Rs 2,190 crore (Previous Year: Rs 1,424 crore)
The Board of Directors of Housing Development Finance Corporation Limited (HDFC) announced its unaudited financial results for the quarter ended June 30, 2018, following its meeting on Monday, July 30, 2018 in Mumbai. The accounts have been subjected to a limited review by the Corporation’s statutory auditors in line with the regulatory guidelines.
TRANSITION TO Ind AS
In accordance with the notifications issued by the Ministry of Corporate Affairs and National Housing Bank, the Corporation has adopted the Companies (Indian Accounting Standards) Rules, 2015 (Ind AS) notified under Section 133 of the Companies Act, 2013 with effect from April 1, 2018.
For the quarter ended June 30, 2018, the Corporation has adopted Ind AS for its standalone financials. The comparative Statement of Profit and Loss for the quarter ended June 30, 2017 is based on the erstwhile Indian Generally Accepted Accounting Principles (Previous GAAP). This has been restated to meet Ind AS requirements.
The effective date of transition to Ind AS is April 1, 2017.
The summary of the reconciliation of the Net Profit as reported under the erstwhile Indian GAAP and Ind AS is given in the Annex.
FINANCIAL RESULTS
Financials for the quarter ended June 30, 2018
The profit before tax, dividend and sale of investments for the quarter ended June 30, 2018 stood at Rs 2,484 crore compared to Rs 1,960 crore in the corresponding quarter of the previous year, representing a growth of 27%.
For the quarter ended June 30, 2018, the Corporation received dividend of Rs 511 crore from HDFC Bank Limited, while in the previous year, dividend from HDFC Bank was received in the second quarter.
The profit before tax for the quarter ended June 30, 2018 stood at Rs 3,070 crore compared to Rs 2,022 crore in the corresponding quarter of the previous year.
The reported profit after tax before other comprehensive income as per Ind AS for the quarter ended June 30, 2018 stood at Rs 2,190 crore compared to Rs 1,424 crore in the corresponding quarter of the previous year, representing an increase of 54%.
LENDING OPERATIONS
Focus on Affordable Housing
In support of the government’s flagship scheme, ‘Housing For All’, the Corporation has increased its efforts towards loans to the Economically Weaker Section (EWS) and Low Income Group (LIG).
During the quarter ended June 30, 2018, 37% of home loans approved in volume terms and 19% in value terms have been to customers from the EWS and LIG segment.
The Corporation on an average has been approving ~ 8,300 loans on a monthly basis to the EWS and LIG segment, with monthly such average approvals at approximately Rs 1,346 crore.
The average home loan to the EWS and LIG segment stood at Rs 10.1 lac and Rs 17.6 lac respectively.
The Corporation has been recognised by the Ministry of Housing and Urban Affairs for its contribution towards the Pradhan Mantri Awas Yojana’s Credit Linked Subsidy Scheme (CLSS) for the second consecutive year. On July 29, 2018, the Honourable Prime Minister, Shri Narendra Modi presented an award to the Corporation for being the best performing primary lending institution in the EWS & LIG segment and the second best in the MIG segment of the CLSS.
Overall Lending Operations
Total individual loan disbursements grew by 17%. The average size of individual loans stood at Rs 26.7 lac.
On an Assets under Management (AUM) basis, the growth in the individual loan book was 18% and the non-individual loan book was 17%. The growth in the total loan book was 18%.
As at June 30, 2018, individual loans comprise 72% of the AUM.
As at June 30, 2018, the loan book stood at
Rs 371,988 crore as against
Rs 3,13,573
crore in the previous year.
During the quarter, the Corporation sold individual loans amounting to Rs 9,714 crore (PY: 2,922 crore). All the loans assigned during the quarter were to HDFC Bank pursuant to the buyback option embedded in the home loan arrangement between the Corporation and HDFC Bank. Income on these loans will continue to be recognised over the life of the loan.
The increase in the amount of loans assigned to HDFC Bank was due to the fact that no loan assignments were done to HDFC Bank since August 2017. Thus, the entire loan assignments during the quarter ended June 30, 2018 pertained to the backlog under the arrangement.
Total loans sold during the preceding twelve months was Rs 13,245 crore as against Rs 13,841 crore in the previous year.
As at June 30, 2018, the outstanding amount in respect of individual loans sold was Rs 46,810 crore. HDFC continues to service these loans and is entitled to the residual income on the loans sold. The residual income on the individual loans sold stood at 1.25% per annum and is being recognised over the life of the loans.
The growth in the individual loan book, after adding back loans sold in the preceding 12 months was 25% (19% net of loans sold). The non-individual loan book grew at 18%. The growth in the total loan book after adding back loans sold was 23% (19% net of loans sold).
Non-Performing Assets (NPAs)
Under Ind AS, the Corporation’s assets have been classified as follows based on Exposure at Default:
- Stage 1: Performing Assets
- Stage 2: Under Performing Assets
- Stage 3: (a) Performing but identified as assets having some degree of stress; (b): Non-Performing Assets
Under Ind AS, asset classification and provisioning moves from the ‘rule based’, incurred losses model to the Expected Credit Loss (ECL) model of providing for expected future credit losses. Thus, loan loss provisions are made on the basis of the Corporation’s historical loss experience, future expected credit loss and after factoring in various macro-economic parameters. (
For further details, refer to Statement on Analysis of HDFC’s Transition to Ind AS).
As per NHB norms, the gross non-performing loans as at June 30, 2018 stood at Rs 4,409 crore. This is equivalent to 1.18% of the loan portfolio. The non-performing loans of the individual portfolio stood at 0.66% while that of the non-individual portfolio stood at 2.32%.
As per National Housing Bank norms, the Corporation is required to carry a total provision of
Rs 3,006 crore.
As against this, the balance in the Provisions and Loan Losses Account as at June 30, 2018 stood at Rs
4,758 crore. This is equivalent to 1.27% of the loan portfolio.
Net Interest Income
The net interest income for the quarter ended June 30, 2018 stood at
Rs 2,890 crore compared to
Rs 2,412 crore in the corresponding quarter of the previous year, representing a growth of 20%.
Spread and Margin
The spread on loans over the cost of borrowings for the quarter ended June 30, 2018 stood at 2.28%. The spread on the individual loan book was 1.91% and on the non-individual book was 3.14%.
Net Interest Margin stood at 3.5%.
INVESTMENTS
As at June 30, 2018, the unaccounted gains on listed investments in subsidiary and associate companies amounted to Rs 1,68,000 crore.
COST INCOME RATIO
For the quarter ended June 30, 2018, the cost to income ratio excluding expenses on employee stock option scheme pursuant to Ind AS and spend on corporate social responsibility stood at 9.8%.
CAPITAL ADEQUACY RATIO
The Corporation’s capital adequacy ratio stood at 16.3%, of which Tier I capital was 15.0% and Tier II capital was 1.3%. As per the regulatory norms, the minimum requirement for the capital adequacy ratio and Tier I capital is 12% and 6% respectively.
DISTRIBUTION NETWORK
HDFC’s distribution network spans 491 outlets which include 159 offices of HDFC’s distribution company, HDFC Sales Private Limited (HSPL). HDFC covers additional locations through its outreach programmes. Distribution channels form an integral part of the distribution network with home loans being distributed through HSPL, HDFC Bank Limited and third party direct selling associates.
To cater to non-resident Indians, HDFC has offices in London, Dubai and Singapore and service associates in the Middle East.
Annex
Summary of the reconciliation of the Net Profit as reported under the erstwhile Indian GAAP and Ind AS:
| Particulars |
Quarter ended June 30, 2017 |
| |
Rs cr |
| Net Profit After Tax as per Previous GAAP |
1,552.42 |
| Adjustments: |
|
| Adjustment on account of effective interest rate / forex valuation / net interest on credit impaired loans |
(106.31) |
| Adjustment on account of expected credit loss |
(50.55) |
| Adjustment due to fair value of stock options |
(95.16) |
| Fair value change in investments |
17.49 |
| Reversal of Deferred tax liability on Section 36(1)(viii) for the quarter |
105.21 |
| Other Adjustments |
1.37 |
| |
|
| Total effect of Transition to Ind AS |
(127.95) |
| Net Profit After Tax as per Ind AS |
1,424.47 |
| Other Comprehensive Income (net of tax) |
(14.56) |
| Total Comprehensive Income (net of tax) as per Ind AS |
1,409.91 |
ANALYSIS OF HDFC LIMITED’S TRANSITION TO Ind AS
In accordance with the notifications issued by the Ministry of Corporate Affairs and National Housing Bank, HDFC Limited (the Corporation) has adopted the Companies (Indian Accounting Standards) Rules, 2015 (Ind AS) notified under Section 133 of the Companies Act, 2013 with effect from April 1, 2018.
For the quarter ended June 30, 2018, the Corporation has adopted Ind AS for its standalone financials. These financials have been subjected to limited review by the statutory auditors of the Corporation.
The comparative Statement of Profit and Loss for the quarter ended
June 30, 2017 is based on the erstwhile Indian Generally Accepted Accounting Principles (Previous GAAP). This has been restated to meet Ind AS requirements. The difference in the accounting principles adopted by the Corporation on transition to Ind AS has been subjected to limited review by the statutory auditors.
Effective Date
The effective date of transition to Ind AS is
April 1, 2017. Accordingly, the net worth as at March 31, 2017 will be adjusted through the Transition Reserve and will be reported with the financials as at September 30, 2018. Earnings for the previous year have been restated.
Transition to Ind AS
Key Changes and its Impact on HDFC Limited
- Effective Interest Rate on Interest Earning Assets and Borrowings
- Interest Earning Assets
Under Ind AS, all income on assets are recorded on
Effective Interest Rate (EIR)[2] basis.
Key Changes:
Fees on interest earning assets which were earlier booked upfront on a cash basis are included in the calculation of EIR resulting in temporary deferral of revenue;
Similarly
DSA commission is also included in the calculation of EIR.
Interest on Non Performing Assets (NPA): Interest income on NPAs which was not accrued earlier is now recognised as part of Ind AS adjustment, if the security is adequate and the present value of realisation of the security is greater than the outstanding loan dues.
- Borrowing Costs
Under Ind AS, all expenses on borrowings are recorded on EIR basis.
Thus, redemption premium on zero coupon bonds, discount and issue expenses on rupee denominated bonds issued overseas (which was earlier routed through the Securities Premium Account) and interest on step-up non-convertible debentures have been charged to the Statement of Profit and Loss on an EIR basis.
Impact: For the quarter ended June 30, 2017, the adjustment in net interest income (net of tax) pursuant to the adoption of EIR under Ind AS was Rs 106 crore lower compared to the previous GAAP.
- Classification of Assets
The Corporation’s assets have been classified based on expected performance. Exposure at Default (EAD) is the total amount outstanding including accrued interest as on the reporting date.
Under Ind AS, the Corporation’s assets have been classified as follows based on EAD:
- Stage 1: Performing Assets
- Stage 2: Under Performing Assets
- Stage 3: (a) Performing but identified as assets having some degree of stress; (b): Non-Performing Assets
Classification of Assets for Computation of Expected Credit Loss (ECL):
| Exposure at Default (EAD) % |
Quarter ended June 30, 2018 |
Quarter ended June 30, 2017 |
Year ended March 30, 2018 |
| |
|
|
|
| Stage 1 |
94.76% |
94.90% |
94.17% |
| Stage 2 |
1.54% |
2.50% |
1.48% |
| Stage 3(a): Standard, stressed assets |
2.52% |
1.49% |
3.24% |
| Stage 3(b): Non Performing Loans |
1.18% |
1.11% |
1.11% |
| |
100.00% |
100.00% |
100.00% |
| |
|
|
|
- Expected Credit Loss (ECL)
Asset classification and provisioning moves from the rule based, incurred losses model to the ECL model of providing for
expected future credit losses. Thus, loan loss provisions are made on the basis of the Corporation’s historical loss experience, future expected credit loss and after factoring in various macro-economic parameters.
Impact: The application of the ECL model (as against provisioning made in accordance with NHB prudential norms) has resulted in an increase of Rs 51 crore (net of tax) for the quarter ended June 30, 2017 under Ind AS compared to the previous GAAP.
Ind AS requires the Corporation to provide for the entire ECL on the legacy portfolio as at April 1, 2017. Accordingly, excess provisions carried by the Corporation are to be adjusted to the opening reserves as on April 1, 2017.
The table below provides the classification of the Corporation’s assets based on EAD and the ECL computation under Ind AS
| As per Ind AS |
Qtr Ended
June 30, 2018 |
Qtr Ended June 30, 2017 |
| |
Rs cr |
Rs cr |
| Gross Stage 3* |
13,866 |
8,222 |
| ECL Provision Stage 3** |
3,863 |
2,396 |
| Net Stage 3*** |
10,003 |
5,826 |
| Coverage Ratio% Stage 3 |
28% |
29% |
| Gross Stage 1 & 2 |
360,738 |
308,301 |
| ECL Provision Stage 1 & 2 |
565 |
586 |
| Net Stage 1 & 2 |
361,173 |
307,715 |
| ECL Provision % Stage 1 & 2 |
0.16% |
0.19% |
* Gross value of total dues (principal and interest thereon) where some degree of stress is perceived
** Total dues (principal and interest thereon) which are unlikely to be received in respect of stressed loans
*** Total dues (principal and interest thereon) likely to be received in respect of stressed loans
- Investments
Under Ind AS, the Corporation has opted to value its equity investments in subsidiary and associate companies
at cost. Consequently, profits will be booked through the Statement of Profit and Loss if and when any of the investments are sold.
Other equity investments are measured at Fair Value Through Profit or Loss or Fair Value Other Comprehensive Income. Debt instruments are valued at amortised cost.
Impact: Under Ind AS, for the quarter ended June 30, 2017, the increase in fair value of investments through the P/L was Rs 17 crore.
- Fair Valuation of Employee Stock Option Schemes (ESOS)
Even though the Corporation has always granted stock options at market price, expense for obligations under ESOS issued during the period has to be fair valued and amortised as part of employee benefit expenses over the period of vesting.
On June 1, 2017, the Corporation granted stock options under ESOS-17. The vesting period was primarily for 1 year with effect from that date and the last vesting date for ESOS-17 is December 1, 2020. Accordingly, the expense for obligations under ESOS-17 has to be fair valued and amortised as part of employee benefit expenses primarily over the period June 1, 2017 to May 31, 2018.
Impact: For the quarter ended June 30, 2017, fair market value of ESOS resulted in an increase in employee benefit expenses to the extent of Rs 95 crore under Ind AS.
- Deferred Tax Liability (DTL) on Special Reserve
Ind AS does not require the creation of DTL on the amount transferred to the Special Reserve. Accordingly, DTL created on special reserve as at March 31, 2017 will be reversed and the charge through the Statement of Profit and Loss Account in earlier years will also be reversed.
Impact: For the quarter ended June 30, 2017, DTL on Special Reserve of Rs 105 crore has been reversed.
- Assignment of Loans to HDFC Bank
The income on the loan assignment transactions with HDFC Bank is being received as a servicing income, which is recognised over the life of the asset.
Impact: There is no impact due to transition to Ind AS on account of the arrangement between the Corporation and HDFC Bank on sourcing and servicing of loans.
Conclusion
All subsidiary and associate companies of the Corporation whose accounts are consolidated with the Corporation are required to restate their accounts except for HDFC Bank Limited, HDFC Life Insurance Company Limited and HDFC ERGO General Insurance Company Limited. This is because Ind AS is applicable for banks from April 1, 2019 and insurance companies from April 1, 2020.
Thus the Corporation will disclose standalone quarterly/year to date financials and not consolidated financials in FY19, except for the quarter/year ended March 31, 2019.
Summary of the reconciliation of the Net Profit as reported under the erstwhile Indian GAAP and Ind AS:
| Particulars |
Quarter ended June 30, 2017 |
| |
Rs cr |
| Net Profit After Tax as per Previous GAAP |
1,552.42 |
| Adjustments: |
|
| Adjustment on account of effective interest rate / forex valuation / net interest on credit impaired loans |
(106.31) |
| Adjustment on account of expected credit loss |
(50.55) |
| Adjustment due to fair value of stock options |
(95.16) |
| Fair value change in investments |
17.49 |
| Reversal of Deferred tax liability on Section 36(1)(viii) for the quarter |
105.21 |
| Other Adjustments |
1.37 |
| |
|
| Total effect of Transition to Ind AS |
(127.95) |
| Net Profit After Tax as per Ind AS |
1,424.47 |
| Other Comprehensive Income (net of tax) |
(14.56) |
| Total Comprehensive Income (net of tax) as per Ind AS |
1,409.91 |
[1] Economically Weaker Section: Household income up to Rs 3 lac p.a.
Low Income Group: Household income greater that Rs 3 lac up to Rs 6 lac p.a.
[2] EIR is defined in Ind AS as ‘the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortised cost of a financial liability.’
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About Ambuja Cements Ltd.
