Indiabulls Housing Finance Ltd’s March quarter metrics show that it managed to prevent its asset quality from worsening sharply due to the pandemic in FY21. While its headline asset quality metrics have worsened over the year, the damage is lower than anticipated.
The lender’s gross bad-loan ratio has climbed to 2.66 per cent from 1.8 per cent a year ago. To be sure, this increase is also due to the loan book shrinking 9.6 per cent during the same period. However, Indiabulls Housing Finance’s bad loan pile has grown 25 per cent, an indication that stress has indeed risen. But much of this was expected given the pandemic.
While bad loan accretion is no surprise, what sets apart lenders is the extent of provisions they have amassed. After all, having enough or even more insurance against adverse effects is the best safeguard for future profitability. The company held provisions totaling Rs 2,458 crore towards stressed loans. On an aggregate level, its provisions are three times more than what is required as per regulations. Even so, it remains to be seen whether these provisions would suffice in the wake of the second wave. The management seems to think so and has pointed out that along with its strategy to achieve an asset-light balance sheet has added resilience to the adverse impact of the second wave.
The lender’s core operating metrics disappointed. Its core interest income took a beating because of interest reversals. These were a combination of an increase in defaults and the judicial rule of offsetting compound interest on all borrowers for the moratorium period. Net interest income dropped 7.7 per cent year-on-year. The doubling of net profit from year-ago period was largely due to a sharp fall in finance costs as interest rates on loans and bonds have dropped.

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