LIC Housing Finance’s March quarter performance reflected the prolonged pain in the real estate sector as also the emerging challenges due to the coronavirus pandemic.

The housing finance company reported a far higher 39% drop in its net profit than the 20% fall estimated by analysts in a Bloomberg survey. Core operating performance too was tepid with net interest income falling by 9% from the year ago period.

The loan book growth slowed to 8% year-on-year from double digit growth in the previous quarters. That is because disbursements fell by a sharp 34% led by a massive 80% fall in those to developers. To be sure, the reduction in disbursals to developers is also by design as the lender has turned cautious on these loans over the past few quarters.

For LIC Housing Finance, the share of developer loans stood at 6.8% as of March. Another category that worries is the loan against property. For the lender, such loans form 16.3% of its loan book. Delinquencies in this category tend to rise faster than other categories during stress in the economy.

It is clear that the lender is losing money on dud loans and such loans are rising. Bad loans where repayments were 90 days past due rose to form 2.83% of its loan book, up from 1.58% a year ago.

What is more worrying is that the lender’s provisions against these bad loans have reduced from the year ago period. This does not augur well for the company as it is exposed to risk in the future. Further, the lender has said that of the total equated monthly instalments (EMI) it receives, 25% are under moratorium now. The regulator allowed banks and non-bank lenders to extend an interest holiday of three months to borrowers which was extended to six months later. The moratorium muddles an already weak asset quality outlook for LIC Housing Finance.

The pandemic’s troubles come even as the lender has been battling high credit costs and increasing stress on its books. Indeed, investors seem to have taken note of this. LIC Housing Finance shares have dropped 35% so far this year. The concerns over the pandemic are also visible. Analysts had already cut earnings per share estimates for the lender and these could be revisited again in the light of the pandemic. The stock trades at a discount to its estimated book value for FY21, pricing in most of worries over asset quality.

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