DECENT SHOW

rose 12 per cent, Q4's performance suggests interest-rate transmission to borrowers has led to moderation in growth. "Cost of funds moderated in December quarter and hence we passed on this benefit to our customers in March quarter, which is why NII growth seems a shade low in Q4. But, I believe interest rates have bottomed out, unless there is another round of rate cut," says Keki Mistry, vice-chairman and chief executive, HDFC.

Nonetheless, these numbers are largely in line with Street expectations. Non-performing assets (NPAs) remained in the safe zone, at 0.79 per cent of loans. Taking into account 56 per cent rise in provisions to ~148 crore, NPAs look nil. FY15 FY16** FY17** 5,990 7,093 7,443

While all these are positives, the stock traded flat on Thursday at ~1,564. Explaining the lack of excitement in the stock, an analyst says, "HDFC has been getting the premium largely for its ability to expand its huge (loan) book at 2025 per cent. But, if loan growth is going to slow, which is fine in the current operating environment, then investors could reconsider their exposure to the stock." He adds that even as the stock remains attractive, given the stability it still offers, after the run-up of 24 per cent this year, some profit-booking is not ruled out.

His concern stems from the loan mix and its likely impact. HDFC has 73 per cent loan exposure to retail customers and 27 per cent to non-retail segment that includes developers. The 3.5 3.4 4.1 developer segment has been under pressure for long as demand for real estate (retail and commercial) remains weak. Mistry believes that while the recently implemented Real Estate (Regulation and Development) Act is a longterm positive, he doesn't rule out short-term pullback in property sales. Therefore, even as margin is better in non-retail segment, much of the growth would depend on lease rental discounting (LRD), where spread is marginally lower than developer loans. It will thus be interesting to see how HDFC sustains high four per cent NIM. Overall loan book grew 14.4 per cent in Q4 with retail (individual) loans growing 13.6 per cent while wholesale loans expanded faster at 16 per cent, helped by LRD.

Going ahead, if retail loans outpace non-retail ones, it will be a positive for HDFC.