Housing Development Finance Corporation Limited
Housing Development Finance — Jefferies 2nd India Forum / Kotak Securities BFSI Forum 2023
58 slides from Housing Development Finance's conference presentation, May 25, 2023
Slide 1: Regulation 30 disclosure cover letter
HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED www.hdfc.com Ref. No.: SE/2023-24/77 May 25, 2023 BSE Limited National Stock Exchange of India Limited P. J. Towers Exchange Plaza, Plot No. C/1, G Block Dalal Street Bandra-Kurla Complex Mumbai 400 001 Bandra (East), Mumbai 400 051 Kind Attn: Sr. Gene
Slide 2: Investor Presentation
Investor Presentation Housing Development Finance Corporation
Slide 3: Contents
CONTENTS • Who we Are • Material Developments • HDFC Snapshot • Mortgage Market in India • Operational and Financial Highlights: Mortgages • Shareholding • Financials: Standalone • Key Subsidiaries and Associates • Financials: Consolidated • Environmental, Social & Governance & Other Initiatives 22
Slide 4: Who we are
WHO WE ARE… Market capitalisation*: US$ 62 bn • Incorporated in 1977 as the first specialised mortgage company in India 20.9% 48.7% 52.6% 49.9% • A financial conglomerate with interests beyond mortgages Market capitalisation*: US$ 115 bn Market capitalisation*: US$ 14 bn Market capitalisation*: US$
Slide 5: Material Developments
MATERIAL DEVELOPMENTS
Slide 6: Material Developments: Combination of HDFC with HDFC Bank
MATERIAL DEVELOPMENTS Proposed Transformational Combination of HDFC with HDFC Bank • On April 4, 2022, the Board of Directors of HDFC and HDFC Bank at their respective meetings, approved a composite Scheme of Amalgamation (Scheme) for: The amalgamation of HDFC's wholly owned subsidiaries, HDFC Inv
Slide 7: Rationale
RATIONALE Proposed Transformational Combination of HDFC with HDFC Bank • In the recent period, various regulatory changes for banks and NBFCs have considerably reduced the barriers for a potential merger: • Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) of banks have reduced from 27% t
Slide 8: Benefits of a combined entity
BENEFITS OF A COMBINED ENTITY Proposed Transformational Combination of HDFC with HDFC Bank • Synergies Access to lower cost of funds Wider distribution network: presently HDFC Bank does not source mortgages from all its offices HDFC Bank to have access to 45+ years of expertise in mortgage ori
Slide 9: HDFC Snapshot
WITH YOU, RIGHT THROUGH
Slide 10: Business Summary
BUSINESS SUMMARY • Loans Outstanding (Gross loans) : Rs. 7,239.88 bn (As at March 31, 2023) : US$ 88.09 bn • Individual Loans Originated CAGR (5 years) : 16% • Cumulative Housing Units Financed : 10.2 million • Cost to Income Ratio : 9.2% (excluding notional cost of Employee Stock Option Scheme Corp
Slide 11: Business Highlights – FY23
BUSINESS HIGHLIGHTS – FY23 • Inherent demand for home loans continues • Loan book and Assets Under Management crossed Rs. 6 trillion and Rs. 7 trillion respectively during the year • 24% growth in individual loans (after adding back loans sold in the preceding 12 months) • Disbursements grew by 16%
Slide 12: Mortgage Market in India
MORTGAGE MARKET IN INDIA
Slide 13: Drivers of Mortgage Growth
DRIVERS OF MORTGAGE GROWTH • Improved Affordability • Low Penetration • Government Incentives Enhanced Fiscal Benefits Incentives for Affordable Housing • Other Demand Drivers 12 12
Slide 14: Improved Affordability
IMPROVED AFFORDABILITY Recent period has seen best affordability in 2.5 decades Government support towards housing has helped improve affordability 70 20.00 18.00 60 16.00 Property Value (Rs. 100,000) & Annual Income (Rs. 100,000) 50 14.00 12.00 Affordability 40 10.00 30 8.00 20 15.6 6.00 11.1 8.3 4
Slide 15: Low Penetration Implies Room for Growth
LOW PENETRATION IMPLIES ROOM FOR GROWTH MORTGAGES AS A PERCENT OF NOMINAL GDP 100% 91% 84% 80% 69% 60% 49% 52% 44% 39% 40% 34% 18% 20% 20% 11% 0% Source: European Mortgage Federation, Hofinet & HDFC estimates for India. 14 14
Slide 16: Government/Regulatory Initiatives
GOVERNMENT/REGULATORY INITIATIVES Government Liquidity Supply Side Incentives Incentives Measures Incentives to Tax incentives on developers to build interest and principal affordable housing Special refinance amount for home loan facilities for borrowers ‘Infrastructure’ Non-Banking status accorded
Slide 17: Tax Incentives Have Lowered Effective Rates on Mortgages
TAX INCENTIVES HAVE LOWERED THE EFFECTIVE RATES ON MORTGAGES FY 2023 FY 2002 FY 2000 Loan amount 3,620,000 3,620,000 3,620,000 Nominal Interest Rate (%) 8.70% 10.75% 13.25% Max deduction for interest allowed 200,000 150,000 75,000 Deduction on principal 150,000 20,000 20,000 Tax rate 34.32% 31.50% 3
Slide 18: Other Demand Drivers
OTHER DEMAND DRIVERS • Favourable Demographics: 66% of India’s population is below 35 years of age, hence large potential for home loans • Nuclear Households: Rise in the number of households with a shift towards nuclear families • Urbanisation: Currently 32% of the Indian population reside in citie
Slide 19: Operational & Financial Highlights: Mortgages
OPERATIONAL & FINANCIAL HIGHLIGHTS: MORTGAGES
Slide 20: Core Business – Lending
CORE BUSINESS – LENDING (As at March 31, 2023 : Gross Loans - US$ 88.09 bn) INDIVIDUAL LOANS • Home Loans- Individuals 83% Fixed rate loans Floating rate loans Corporate 4% • Home Improvement Loans Construction Finance 7% • Home Extension Loans • Home Equity Loans Lease Rental Discounting 6% • R
Slide 21: Housing Across Income Groups
HOUSING ACROSS INCOME GROUPS Housing Loan Approvals Based on Income Slabs: FY23 In Value terms In Number terms HIG 53% HIG 29% LIG / EWS 9% MIG 48% LIG / EWS 23% MIG 38% Economically Weaker Section: Up to Rs. 0.3 mn p.a Low Income Group: Above Rs. 0.3 mn to Rs. 0.6 mn p.a. Middle Income Group: Above
Slide 22: Individual Loans: FY23
INDIVIDUAL LOANS: FY23* Employment Acquisition Mode Geographic Spread Employed North 27% First 77% Purchase Self- 54% construction 8% West 34% Self- Employed Resale South 35% (incl: 38% professionals) East 23% 4% Employed Self-Employed (incl: professionals) Resale Self-construction First Purchase Ea
Slide 23: Scale & Speed Through Digitalisation
SCALE & SPEED THROUGH DIGITALISATION • Growing trend of digital on-boarding of customers Reimagined on-boarding journey with both, mobile and web Digital on–boarding enabled for channel partners Customers digitally on-boarded and go through a paperless approval process Use of QR codes to hel
Slide 24: 84% of Mortgages Sourced by Ourselves or Affiliates
84% OF OUR MORTGAGES ARE SOURCED BY OURSELVES OR THROUGH OUR AFFILIATES DIGITAL CHANNELS FOR CUSTOMERS March 31, 2023 • Using digital and social media marketing strategies and tools to reach out to Other Direct Selling customers Agents 16% HDFC Bank • Lifecycle management for upselling and 31% cross
Slide 25: Conservative Loan Profile Underlies High Credit Quality
OUR CONSERVATIVE LOAN PROFILE UNDERLIES OUR HIGH CREDIT QUALITY • Average Loan Size : Rs. 3.62 mn (~US$ 44,000) • Average Loan to Value : 70% (at origination) • Average Loan Term : 12 years • Average Age : 38 years • Primary Security : Mortgage of property financed • Repayment Type : Amortising 24 2
Slide 26: Gross Non-Performing Loans & Provisions Carried
GROSS NON-PERFORMING LOANS(NPLs) & PROVISIONS CARRIED As per RBI's Revised Norms (i.e. November 12, 2021) 2.38% 2.21% 2.50% 1.91% 1.96% As at March 31, 2023 (Rs. in bn) 2.00% 1.49% 1.18% NPLs (90 days): 72.46 1.50% Percentage 1.00% Provisions Carried: 121.45 0.50% 0.00% Mar-22 Dec-22 Mar-23 GROSS NP
Slide 27: Expected Credit Loss Based on Exposure at Default
EXPECTED CREDIT LOSS (ECL) BASED ON EXPOSURE AT DEFAULT (EAD) As per IndAS Exposure at Default Mar-23 Dec-22 Mar-22 Sta ge 1 95.0% 94.5% 93.3% Sta ge 2 3.6% 3.7% 4.4% Sta ge 3 1.4% 1.8% 2.3% Coverage Ratio (ECL/EAD) Sta ge 1 0.26% 0.27% 0.26% Sta ge 2 26.57% 24.98% 20.35% Sta ge 3 53.16% 55.96% 54.3
Slide 28: Multiple Sources of Borrowings
MULTIPLE SOURCES OF BORROWINGS (As at March 31, 2023: Total Borrowings - US$ 69.14 bn) 100% 3% 3% 5% 80% 42% 40% External Commercial Borrowings 45% Debentures & Securities 60% Percentage Term Loans 21% 25% 40% 23% Deposits 20% 34% 32% 27% 0% Mar-21 Mar-22 Mar-23 Total Borrowings: Rs. 5,682.22 bn (US
Slide 29: Loan Spreads
LOAN SPREADS 12.00% 2.40% 10.18% 10.00% 8.99% 8.99% 2.35% 2.29% 8.06% 8.00% 2.27% 2.29% 2.30% 6.00% 2.29% 2.25% 4.00% 6.70% 2.20% 7.91% 6.70% 5.77% 2.00% 2.15% 0.00% 2.10% FY20 FY21 FY22 FY23 Return on Loans Cost of Borrowings Spread FY23 Spread earned on: Individual Loans 1.92% Non-individual Loans
Slide 30: Maturity Profile
MATURITY PROFILE (As at March 31, 2023) 4,000 3,477 3,500 3,016 3,000 2,583 2,545 Rs. in billion 2,500 2,000 1,707 1,500 1,208 1,000 500 0 Up to 1 yr >1-5 yrs Over 5 yrs Assets Liabilities The above graph reflects adjustments for prepayments and renewals in accordance with the guidelines issued by t
Slide 31: Productivity Ratios
PRODUCTIVITY RATIOS Mar-23 Mar-22 Number of employees 4,017 3,599 Number of outlets 523 464 Profit per employee (US$ '000) 492 501 Assets per employee (US$ mn) 21.3 22.7 Admin costs/assets (%)^ 0.27 0.23 Cost income ratio (%)^ 9.2 8.1 ^ Excluding one-time merger related expenses for Mar-23, CSR expe
Slide 32: Key Financial Metrics
KEY FINANCIAL METRICS Mar-23 Mar-22 Net Interest Margin (%) 3.6 3.5 Pre-Tax RoAA (%) 3.0 2.9 Post Tax RoAA (%) 2.5 2.3 Return on Tier 1 Capital (%) 16.0 15.4 Capital Adequacy (%) 24.3 22.8 Of which Tier I (%) 23.8 22.2 Tier II (%) 0.5 0.6 31 31
Slide 33: Shareholding
SHAREHOLDING
Slide 34: Shareholding Pattern
SHAREHOLDING PATTERN (As at March 31, 2023) 66% Foreign Shareholders - 66% 10% Individuals - 10% Mutual Funds - 13% Financial Institutions, Banks & Insurance Companies - 9% 13% Companies - 2% 2% 9% 33 33
Slide 35: Financials Standalone
FINANCIALS STANDALONE (BASED ON INDIAN ACCOUNTING STANDARDS)
Slide 36: Balance Sheet (Standalone)
BALANCE SHEET (Standalone) Mar-23 Mar-22 Growth (Rs. in billion) (Rs. in billion) (%) Sources of Funds Shareholders' Funds 1,339.85 1,202.51 Borrowings 5,682.22 4,996.81 14% Current Liabilities & Provisions 245.67 209.30 7,267.74 6,408.62 13% Application of Funds Loans (before provisions) ^ 6,205.07
Slide 37: Financials – FY23
FINANCIALS – FY23 • FY23 entailed a volatile environment • The monetary policy and interest rate actions have had a short-term impact on the net interest income • This has been due to the transmission lag between the interest rate increase in borrowing costs and the increase in lending rates • On ac
Slide 38: Statement of Profit and Loss – FY23 (Standalone)
STATEMENT OF PROFIT AND LOSS – FY23 (Standalone) FY23 FY22 Growth (Rs. in billion) (Rs. in billion) (%) Net Interest Income 192.47 171.19 12% Add: Income on derecognised (assigned) loans 12.45 10.56 Add: Other Operating Income 4.09 3.30 Net Operating Income 209.01 185.05 13% Less: Non Interest Expen
Slide 39: Statement of Profit and Loss – Q4FY23 (Standalone)
STATEMENT OF PROFIT AND LOSS – Q4FY23 (Standalone) Jan-Mar 23 Jan-Mar 22 Growth (Rs. in billion) (Rs. in billion) (%) Net Interest Income 53.21 46.01 16% Add: Income on derecognised (assigned) loans 5.73 4.36 Add: Other Operating Income 1.20 0.97 Net Operating Income 60.14 51.34 17% Less: Non Intere
Slide 40: Key Associates and Subsidiaries
KEY ASSOCIATES AND SUBSIDIARIES
Slide 41: HDFC Bank Limited
HDFC BANK LIMITED • 20.9% owned by HDFC • ADRs listed on NYSE • 7,821 banking outlets, 19,727 ATMs • Key business areas- Wholesale banking | Retail banking | Treasury operations • Financials (as per Indian GAAP) for the year ended March 31, 2023 Advances as at March 31, 2023, stood at Rs. 16 trill
Slide 42: HDFC Life Insurance Company Limited
HDFC LIFE INSURANCE COMPANY LIMITED (HDFC LIFE) • 48.7% owned by HDFC • Successfully completed the merger with Exide Life in October 2022. The entire transaction was completed in less than 14 months • Total premium income for the year ended March 31, 2023 stood at Rs. 575.33 bn (PY: Rs. 459.63 bn) •
Slide 43: HDFC Asset Management Company Limited
HDFC ASSET MANAGEMENT COMPANY LIMITED (HDFC AMC) • 52.6% owned by HDFC • Quarterly Average Assets under Management as at March 31, 2023, stood at Rs. 4.5 trillion (US$ 55 bn), with an overall market share of 11.1% • Amongst India’s largest actively managed equity mutual funds with a market share of
Slide 44: HDFC ERGO General Insurance Company Limited
HDFC ERGO GENERAL INSURANCE COMPANY LIMITED (HDFC ERGO) • HDFC holds 49.99% and ERGO International AG holds 48.9% of the equity of HDFC ERGO • Gross written premium for year ended March 31, 2023 stood at Rs. 168.7 bn (PY: Rs. 137.1 bn) • Products: Motor, health, travel, home and personal accident in
Slide 45: HDFC Capital Advisors Limited
HDFC CAPITAL ADVISORS LIMITED (HCAL) • HDFC owns 89% and Abu Dhabi Investment Authority (ADIA) holds 10% of the equity in HCAL • HDFC Capital Affordable Real Estate Fund (HCARE) • Set up as a SEBI registered AIF in 2016 • Objective: To provide long-term flexible funding across the lifecycle of affor
Slide 46: HDFC Credila Financial Services Limited
HDFC CREDILA FINANCIAL SERVICES LIMITED (HDFC CREDILA) • HDFC holds 100% in HDFC Credila • HDFC Credila is a non-banking finance company and was the first Indian lender to exclusively focus on education loans • The company lends to under-graduate and post-graduate students studying in India or abroa
Slide 47: Financials Consolidated
FINANCIALS CONSOLIDATED (BASED ON INDIAN ACCOUNTING STANDARDS)
Slide 48: Balance Sheet (Consolidated)
BALANCE SHEET (Consolidated) Mar-23 Mar-22 Growth (Rs . i n bi l l i on) (Rs . i n bi l l i on) (%) Sources of Funds Shareholders' Funds 2,153.13 1,926.30 12% Liabilities Pertaining to Insurance Business 2,619.55 2,393.14 Loan Funds 5,822.65 5,074.60 Current Liabilities & Provisions 319.96 269.45 10
Slide 49: Statement of Profit and Loss – FY23 (Consolidated)
STATEMENT OF PROFIT AND LOSS – FY23 (Consolidated) Rs. in billion FY23 FY22 Interest & Other Operating Income 603.65 480.86 Income from Insurance Business 908.68 852.19 Profit on Sale of Investment & Investment Properties 0.05 0.71 Net gain on fair value changes 5.67 15.65 Income on derecognised (as
Slide 50: Consolidated Profit After Tax – FY23
CONSOLIDATED PROFIT AFTER TAX – FY23 (As per Ind-AS) FY23 FY22 (Rs. in billion) (Rs. in billion) HDFC Profit After Tax 162.39 137.42 HDFC Life 5.57 5.74 HDFC Ergo 3.03 2.59 HDFC Bank 106.05 85.17 HDFC AMC 7.48 7.33 HDFC Credila 2.76 2.06 Other Companies 5.43 2.64 Adjustments: Dilution gain / loss fr
Slide 51: ESG & Other Initiatives
ESG & OTHER INITIATIVES
Slide 52: The ESG Way: Encompassing All Stakeholders
THE ESG WAY: ENCOMPASSING ALL STAKEHOLDERS • ESG Ratings: HDFC’s environmental impact is minimal/low risk • Long-term commitment to finance affordable & green housing • Focus on responsible lending -- enhanced E&S due diligence • MoU with Indian Green Building Council to help promote green buildings
Slide 53: The ESG Way: Encompassing All Stakeholders
THE ESG WAY: ENCOMPASSING ALL STAKEHOLDERS • Shelter Assistance Reserve created in 1987: Set aside a portion of profits each year to support socially high impact projects • Cumulatively financed 10.2 million housing units • Focus on inclusion & diversity; employee engagement, training and wellbeing
Slide 54: The ESG Way: Encompassing All Stakeholders
THE ESG WAY: ENCOMPASSING ALL STAKEHOLDERS • Founding principles of kindness, fairness, efficiency & effectiveness • Recent Awards 'India's Leading Housing Finance NBFC (Large)' at the Dun & Bradstreet BFSI & Fintech Summit 2023 Highest Governance score of 1 by ISS, 2022 'Leadership' category
Slide 55: ESG Reports
ESG REPORTS • Report of Directors on Corporate Governance • Annual Report on Corporate Social Responsibility (CSR) Activities • Business Responsibility and Sustainability Report • Introductory Framework on Climate-related Financial Disclosures • Integrated Report • Social Initiatives Report • Indepe
Slide 56: DASH Philosophy & Digitalisation Objectives
DASH PHILOSOPHY & DIGITALISATION OBJECTIVES Re-imagine and transform the customer journey across the lifecycle to improve customer experience and create market differentiation D A S H Digital First Agile Methods Seamless HDFC For You WAVE 1 Personalised and digital Customer centric Automate document
Slide 57: DASH Philosophy & Digitalisation Initiatives
DASH PHILOSOPHY & DIGITALISATION INITIATIVES • Board level Information Technology Committee - comprising two independent directors, a whole-time director and members of senior management • Information Security and Steering Committee monitors the progress of information security and cyber security •
Slide 58: With You, Right Through
WITH YOU, RIGHT THROUGH May 4, 2023
Housing Development Finance — Jefferies 2nd India Forum / Kotak Securities BFSI Forum 2023 on 6ix