That Housing Development Finance Corp. Ltd (HDFC) will report a huge jump in its net profit for the December quarter was largely anticipated, given the one-time gain from the sale of its subsidiary Gruh Finance Ltd to Bandhan Bank Ltd.

Sure, the largest housing finance company reported a 296% surge in its profit as it booked a one-time gain of ₹9,019.81 crore from the sale of Gruh Finance. Beyond this, the performance was mixed.

First the good points. Loan book growth in the December quarter seems to have increased from the previous quarters and HDFC is showing signs of returning to its heydays of robust growth led by individual loans.

The company’s loan book grew at 14.6% on an assets under management basis, with loans to individuals growing at 16%. In the past few quarters, as shown in the accompanying chart, HDFC had witnessed a deceleration in loan growth.

To be sure, the non-individual loan book, which includes finance to real estate developers, has grown faster in the December quarter compared with previous quarters.

HDFC has been one of the most conservative firms in terms of lending to real estate developers. This has stood in good stead for the lender. Now, the lender may have begun to feel the stones and increase lending cautiously to this segment.

“The focus on affordable housing loans continued unabated this quarter and we continue to remain cautious in the non-individual loan segment," said Keki Mistry, vice chairman and chief executive officer of HDFC, at a press conference.

The upside of faster growth in non-individual loans is the boost to spreads and margins. Spreads increased marginally to 2.27% in the December quarter from 2.26% a year ago.

Mistry said the company is growing its book with volume in mind and has kept the average loan size limited to ₹26.9 lakh.

What should worry investors is the beef-up in provisions. HDFC’s provisions spiked to ₹2,995 crore in the December quarter, from ₹116 crore a year ago. Provisions have been increasing every quarter and the lender attributes this to its policy of being safe than sorry.

Granted, HDFC has always erred on the side of caution and set aside provisions far higher than what regulation mandates.

Even so, when a lender provides higher than required, there is more to it than prudence. Perhaps HDFC foresees the stress in the real estate sector to linger for a longer period of time. The real estate sector is still depressed, although signs of recovery are visible. To be sure, affordable housing has shown good growth.

Investors are sure to note that HDFC’s loan growth is improving but they would want to wait and see the impact on asset quality going ahead.