mortgage: the Crisil report explains why housing finance companies will continue to lose market share to banks

Assets under management (AUM) of housing finance companies are expected to increase by 10-12% in 2022-23, compared to 8% the previous year, according to a new report from the rating agency Crisil. But despite this better growth, they will still lose market share to banks, according to the report.

An increasingly aggressive home lending game will help banks continue to gain market share at the expense of HFCs, he said.

Data shows that banks have consistently eaten away at HFC’s market share over the past four years. In March 2022, banks held 62% of the market.

According to Crisil, this market share trend is unlikely to change in the short term. The recent merger between HDFC, the pure domestic financier, with HDFC Bank will only reinforce the trend, the agency noted. Affordable housing is the only area where HFCs have grown comparatively faster. Indeed, competition from banks is relatively less in this segment, according to the report.

HFCs are expected to have a harder time growing market share than banks due to their higher funding costs, Crisil observed.

It can be noted here that while most HFCs have easy access to finance, they are not on the same footing as banks that have a large (low cost) deposit base.

According to Crisil, “Given challenges such as thin spreads, tighter regulatory conditions and lack of depth in the corporate bond market, HFCs will need to realign their business models.”

The agency said it expects more HFCs to partner with banks; this way, both partners can leverage each other’s strengths. A number of such rapprochements have already taken place, he said.

The agency said the core HFC mortgage lending segment will grow 15% in FY23, while developer financing and mortgage lending growth will continue to be moderate.

In the last fiscal year, the HFC growth story had two distinct halves. In the first half, there was only 2% year-over-year growth due to the second wave of Covid. But the second half saw a 14% increase in annualized growth.

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