The Government has reduced Corporate Tax Rate (CTR) from 34.94% to 25.17%. Under the new guidelines, corporates that have taken higher provisions and created Deferred Tax Assets (DTA) at 34.94% need to revise the tax rate to 25.17%, leading to a one-time P&L charge of 9.77%. Over the last 3 years, the company has implemented accelerated provisions to enhance provision coverage ratio (PCR). Consequently, Q2FY20 results reflect one time impact of Rs 473 crore due to reversal of DTA as on 1 April 2019.

Excluding DTA impact, the net profit of the company has increased 15% to Rs 647 crore in Q2FY2020 from Rs 560 crore in Q2FY2019.

The company maintained stable revenue growth with steady margins, while exhibited healthy improvement in expense ratio. However, the credit cost remained elevated, while exhibited moderation in asset quality in Q2FY2020. The loans growth of the company for focused segment was healthy at 19%, while the Net Interest Margins (NIMs) for the lending business stood at 5.45% in Q2FY2020 from 5.01% in the corresponding quarter last year.

The net profit for the lending business surged 55% to Rs 749 crore in Q2FY2020, driven by 42% jump in rural business net profit to Rs 309 crore. Housing Finance business net profit moved up 24% to Rs 244 crore, while the infrastructure finance net profit also gained 193% to Rs 196 crore. However, the defocused business segment registered loss of Rs 121 crore in Q2FY2020.

The consolidated income from operations of the company increased 12% to Rs 3711.85 crore for the quarter ended September 2019, as interest income moved up 17% to Rs 3294.38 crore. Other income declined 13% to Rs 417.47 crore for quarter ended September 2019.

Interest expenses increased 12% to Rs 1897.95 crore. Net Interest Income increased 19% to Rs 1396.43 crore. Operating expenses declined 10% to Rs 463.16 crore, allowing the operating profits to improve 18% at Rs 1350.74 crore. The cost-to-income ratio declined to 25.5% in Q2FY2020 from 31.0% in Q2FY2019.

Depreciation jumped 35% to Rs 15.89 crore, while provisions galloped 74% to Rs 578.56 crore. Profit before tax declined 5% yoy basis at Rs 756.29 crore for quarter ended September 2019. The tax provisions surged due to DTA reversals to Rs 581.78 crore in Q2FY2020 from Rs 238.52 crore in Q2FY2019. Net Profit of the company, after share in profit of associates and non-controlling interest, dipped 69% to Rs 174.20 crore for quarter ended September 2019.

Business performance

Loans and Advances grew 10% to Rs 100258 crore at end September 2019 as compared to Rs 91201 crore at end September 2018. Loans & Advances in the focused businesses moved up 19% to Rs 93055 crore at end September 2019 compared with Rs 78003 crore at end September 2018. In the de-emphasized portfolio, the loans & advances dipped 45% to Rs 7203 crore end September 2019.

The company has posted 42% decline in loan disbursements to Rs 9779 crore in Q2FY2020. The disbursements in the focused businesses fell 12%, as the disbursements of the infrastructure finance segment declined 19% to Rs 3108 crore in Q2FY2020. The rural business disbursements also fell 2% to Rs 4638 crore and housing finance business dipped 21% to Rs 2032 crore in Q2FY2020.

In the Investment Management business, Average Assets under Management (AAUM) has increased 7% to Rs 73754 crore in Q2FY20 from Rs 69213 crore in Q2FY19.

In the Wealth Management business, Assets under Service (AUS) has increased 25% to Rs 26309 crore in Q2FY20 from Rs 21065 crore in Q2FY19.

Asset Quality

Gross Stage 3 assets of the company have increased to 5.98% end September 2019 from 5.72% a quarter ago, while declined from 7.10% a year ago. Net State 3 assets also rose to 2.83% from 2.48% a quarter ago and 2.79% a year ago. The provision coverage ratio eased to 54.00% from 62.00% a year ago.

Rural business: Rural Business net profit has increased 42% to Rs 309 crore in Q2FY2020, driven by NIM rising 25% to Rs 756 crore, while Fee Income also surged 20% to Rs 118 crore. The operating expenses moved up 49% to Rs 263 crore, while credit cost jumped 16% to Rs 251 crore in Q2FY2020. The net interest margins of the rural business were healthy at 11.47% in Q2FY2020 compared with 11.84% in Q2FY2019.

The rural business loan book jumped 24% to Rs 26597 crore end September 2019. Within the rural finance book, the microfinance loan book moved up 23% to Rs 12841 crore, farm equipment 15% to Rs 7747 crore and two wheeler 41% to Rs 6009 crore end September 2019.

The company has exhibited 2% decline in rural business disbursements to Rs 4638 crore in Q2FY2020, driven by 16% decline in farm equipment disbursements to Rs 686 crore, while the microfinance disbursements rose 2% to Rs 2,839 crore and two wheelers 1% to Rs 1113 crore, in Q2FY2020.

Gross Stage 3 assets of rural business have moved up to 3.61% and net stage 3 assets to 1.45% end September 2019. The provision coverage ratio eased to 61% end September 2019.

Housing Finance business: The net profit of housing finance business jumped 24% to Rs 244 crore in Q2FY2020. The Net Interest Income jumped 18% to Rs 341 crore, while fee income declined 17% to Rs 53 crore in housing finance business. The credit cost increased 24% to Rs 42 crore in Q2FY2020.

The disbursement in the housing finance business declined 21% to Rs 2,032 crore, driven by 24% dip in real estate finance disbursements to Rs 1,238 crore, while LAP disbursements plunged 58% to Rs 142 crore in Q2FY2020. The home loan disbursements have increased 7% to Rs 652 crore in Q2FY2020.

The housing finance loan book jumped 24% to Rs 26986 crore end September 2019 over September 2018. The real estate finance loan book moved up 31% to Rs 15885 crore and home loan book increased 33% to Rs 7024 crore and LAP declined 5% to Rs 4076 crore end September 2019.

Gross stage 3 assets of housing finance business have improved to 0.79% end September 2019 from 0.82% a quarter ago. The provision coverage ratio eased to 30% end September 2019.

Infrastructure finance business: The net profit of Infrastructure finance business (including defocused book) declined 3% to Rs 196 crore in Q2FY2020. The Net Interest Income increased 10% to Rs 276 crore, while fee income dipped 45% to Rs 92 crore in Infrastructure finance business. The credit cost surged 34% to Rs 121 crore in Q2FY2020.

The disbursement in the Infrastructure finance business declined 19% to Rs 3108 crore, as infrastructure finance disbursements declined 22% to Rs 2436 crore, while IDF fell 5% to Rs 672 crore in Q2FY2020.

The Infrastructure finance loan book increased 13% to Rs 39472 crore end September 2019 over September 2018. The infrastructure finance loan book moved up 13% to Rs 30660 crore and IDF 13% to Rs 8812 crore end September 2019.

The gross stage 3 assets of wholesale finance business eased to 9.24% end September 2019 from 9.68% a quarter ago. The provision coverage ratio moved up 57% end September 2019.

Book value per share of the company stood at Rs 69.9 per share at end September 2019. Adjusted book value (net of NNPA) per share of the company stood at Rs 56.7 per share at end September 2019.

Half Yearly Financial Performance

The consolidated income from operations increased 11% to Rs 6607.15 crore for the half year ended September 2019, while other income of the company jumped 46% to Rs 794.20 crore. The total income increased 14% to Rs 7401.35 crore for H1FY2020. Interest expenses increased 21% to Rs 3820.89 crore. Operating expenses declined 11% to Rs 890.89 crore, allowing the operating profits to improve 17% at Rs 2689.57 crore. The cost-to-income ratio improved to 24.9% in H1FY2020 from 30.4% in H1FY2019. Depreciation increased 35% to Rs 31.66 crore, while provisions surged 53% to Rs 1158.99 crore. Profit before tax declined 2% yoy basis at Rs 1498.92 crore. Effective tax rate increased to 52% in H1FY2020 from 28.0% in H1FY2019. Net Profit of the company, after share in profit of associates and non-controlling interest, declined 34% to Rs 723.77 crore for H1FY2019.