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Indian banks looking for refuge in housing loans

January 23, 2014

Demand has been stoked by a persisting housing shortage. Indian mortgage lender Housing Development Finance Corp Ltd (HDFC), loved by global investors for its steady profit growth, faces an intensifying battle for business and market share as banks aggressively push home loans. With India's economic flu hitting corporate lending, banks have cranked up efforts to tap into the country's housing loan demand, which has proven to be brick-hard by comparison. Demand for homes, and loans, has been stoked by a persisting housing shortage as long-term demographic changes urbanisation, rising incomes, more nuclear families transform how and where people live in Asia's third-biggest economy. With their eyes on the prize, banks such as state-run Bank of India (BOI) and ICICI Bank , the biggest private sector lender, are swarming the market with discounts and special offers, willing to even live with narrower margins. They are also expanding into lower-tier cities, a market that HDFC is nurturing. "This is a very safe business. All our branches are working hard to grow home loans. We want to grow faster than the industry," said Anil Verma , BOI's chief financial officer. BOI is setting up branches that only sell auto and home loans, taking five days to process a mortgage. It often takes between two weeks and a month to get a home loan approved in India . State Bank of India (SBI), which dethroned HDFC as India's top mortgage lender about two years ago, was charging mortgage interest of up to 200 basis points above its base rate in 2011. SBI is now offering home loans at just 10-30 bps above the base rate, underscoring the intensifying competition. SBI's home loans grew 20 per cent in the September quarter from 13 per cent a year earlier. ICICI doubled its mortgage growth to 23 per cent, while HDFC was flat at 23 per cent, according to a report by Ambit Capital this month. But the battle for mortgage borrowers is threatening to squeeze net interest margins (NIMs). Analysts expect a 10-20 basis point margin decline for Indian banks in the year ending March 2014 from an average of 3.1 per cent in 2010/11. Brokerage Jefferies expects HDFC's NIM to ease to 4.14 per cent from 4.4 per cent over the same period. So far, HDFC's overall profitability has remained unscathed, thanks to demand for homes in smaller cities as well as income from other businesses. For the December quarter, net profit may have risen about 12 per cent from a year earlier to Rs12.8 billion ( $207.83 million ), according to Thomson Reuters I/B/E/S. For its part, HDFC, which counts Blackrock , the Singapore government and Aberdeen Asset Management among its investors, is spreading into smaller cities and towns and seeking more agents to find more mortgage borrowers. It pays a fee to partners IndusInd Bank and Ratnakar Bank to bring in customers, and its share of business from the two banks and other agents has more than doubled in three years to 17 per cent of its total loans in the September quarter. "We have to go out, we have to keep reaching out, we have to keep up the effort of finding more and more agents, more and more partners who will source loans for us," HDFC CEO Keki Mistry said in an interview last month. HDFC is also relying increasingly on other businesses including insurance, asset management and private equity to drive profit. In the year ended March 2013 , the share of profit from subsidiaries and associate companies more than doubled to 27 per cent from 13 per cent in 2008. HDFC's stock has risen more than five times over the last decade, compared with a 263 per cent gain in the wider market . It also has the highest concentration of foreign institutional ownership of stocks in the Sensex, at more than 74 per cent, according to data on the Bombay Stock Exchange . Investors have long held it for its relatively stable returns. Its shares fell four per cent in 2013, but outperformed the bank index, which lost nine per cent. SBI, which accounts for a quarter of all loans in India , expects to grow its mortgage loans by about 20 per cent in the current fiscal year.


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Source: Khaleej Times (United Arab Emirates)


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