HDB Financial Services (HDBFS), a subsidiary of HDFC Bank and a prominent player in the Non-Banking Financial Company (NBFC) sector, recently announced its financial results for Q3FY21. As a Systemically Important Non-Deposit taking NBFC, HDB Financials plays a crucial role in meeting the financial needs of a diverse clientele in India, both in the retail and commercial sectors.

The HDB Financials results for Q3FY21 have raised concerns, as the company continues to navigate through the challenges posed by the COVID-19 pandemic. Despite these obstacles, the company's loan book exhibited growth, reaching ₹57,710 Crores in December 2020, up from ₹56,748 Crores in the previous year. This growth, however, is modest, reflecting the cautious approach adopted by HDB Financials in loan disbursement due to the economic uncertainty caused by the pandemic.

A key highlight of the HDB Financials results is the company's interest income, which stood at ₹1,010 Crores for Q3FY21, slightly higher than the ₹995 Crores reported in the same period last year. This increment, though marginal, signals a steady income flow for the company.

However, the HDB Financials results also revealed a significant downturn in terms of profitability. The company reported a loss of ₹44 Crores in Q3FY21, a stark contrast to the profit of ₹216 Crores in the corresponding quarter of the previous year. This loss is primarily attributed to a substantial provision of ₹880 Crores made in Q3FY21 to mitigate the impact of COVID-19. Consequently, the total Profit After Tax (PAT) for the first nine months of FY21 stood at ₹283 Crores, down from ₹695 Crores in the same period last year.

In terms of asset quality, HDB Financials' Gross NPA and Net NPA were reported at 2.7% and 1.7%, respectively. However, these figures could have been significantly higher, at 5.9% for Gross NPA, had the company classified borrower accounts as NPAs post the end of the moratorium on August 31, 2020. This indicates a rise in non-performing retail loans since March 2020.

On a positive note, HDB Financials maintains a strong Capital Adequacy Ratio of 19.5%, well above regulatory requirements, showcasing the company's robust financial position.

Looking ahead, there is optimism surrounding the recovery of the financial sector. As the economy rebounds, HDB Financials is likely to witness an increase in loan disbursements. The next few years are expected to be particularly beneficial for financial companies, marking a resurgence in the credit cycle. With the worst phase seemingly over, HDB Financials and its counterparts in the financial sector are poised for a period of fruitful growth and stability.