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Indiabulls Housing Finance Ltd has been shedding its troubled wholesale loan book and continued to do so even in the December quarter. This strategy seems to have paid off as the lender reported only a marginal increase in its stressed loans. Gross bad loans as a percentage of its total book were 2.44 per cent for the December quarter, up from 2.20 per cent in the previous quarter. This is excluding the benefit of a judicial standstill on asset recognition. Another relief to investors is that only 2 per cent of its loan book was restructured. All this augurs well for the lender’s asset quality in the coming quarters.
Wholesale lending or loans to developers has been a sour spot for most housing finance companies. The persistent stress in the real estate sector with the additional blow of the pandemic has prompted lenders to push for more retail lending. Indiabulls Housing Finance plans to halve its wholesale book in the next year. Investors have noticed the lender’s efforts to thwart future stress. Shares of the company have risen about 12 per cent in the past six months. Even so, shares have grossly underperformed the broad market and peers such as HDFC Ltd. One reason is the shadow upon the company’s liquidity and its fundraising prospects. To be sure, the lender has raised Rs 28,119 crore in FY21 so far through bonds and equity. The fact that its cost of funds reduced, albeit marginally, shows that the lender has been able to raise money at competitive rates. Even so, the lender has been unsuccessful in allaying the worries of its investors completely.
Meanwhile, it has also kept provisioning high given the stress on books in the wake of the pandemic. It doubled provisions sequentially and set aside Rs 843 crore towards expected credit loss or stage three loans. To that extent, the 40 per cent year-on-year decline in net profit should be discounted by investors.
That said, the company continues to be vulnerable to stress given the real estate sector’s sluggishness. What’s more is that the mainstay business of the Indiabulls Group continues to be real estate and until there is a meaningful pick-up in the sector, the group’s finances would also cast a shadow over the lender and its valuations.
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