Housing finance companies will concede market share to banks: Crisil

MUMBAI: Housing finance companies (HFCs) are expected to continue losing market share of home loans to banks amid stiff competition. According to a Crisil report on Wednesday, HFCs have already conceded 400 basis points of market share to banks over the past four fiscal years, pushing banks’ share up to 62% in March 2022.

This is despite the fact that assets under management (AUM) of housing finance companies are expected to grow 10-12% this fiscal year, compared to 8% growth in the prior fiscal year, driven by home loans, which could increase by 15% year on year.

“The ability of HFCs to compete with banks in the traditional salaried home loan segment remains a challenge given their relatively higher funding costs. And in the non-real estate lending segments (developer finance and LAP), which have been yield accelerators, exposure to HFCs has declined over the past few years, putting pressure on overall spreads,” he said. the rating agency said in its report.

Growth in developer financing and loans on property (LAP) will remain subdued. However, affordable housing financiers are expected to grow relatively faster at 18-20%.

The real estate lending segment (72% of assets under management) grew by 11% over the last fiscal year due to better accessibility, better revenue visibility following the resumption of economic activity, higher demand in urban areas and an increased preference for home ownership. In other segments, growth was flat, with only large, well-capitalized HFCs active in wholesale funding, according to the report.

“Structural factors driving end-user housing demand remain intact this fiscal year despite the impact of rising house prices and interest rates. And despite recent increases, interest rates remain below previous cycles and have not had a significant impact on client interest,” said Krishnan Sitaraman, Senior Manager and Deputy Head of Ratings, CRISIL Ratings.

According to the rating agency, HFCs should increasingly partner with banks and leverage each other’s strengths to grow their books. Some HFCs are already moving in this direction. Therefore, growth in assets/books is likely to be less than growth in assets under management.

One segment where HFCs have grown relatively faster is in affordable home loans, where competition from banks is limited. Affordable Housing Financiers (AHFC) has therefore seen relatively better growth of 12-15% in the recent past, despite moderating from earlier levels. Given their relatively small footprint and strong underlying demand, AHFCs are expected to continue to grow faster than traditional HFCs, the report adds.

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