Home Loan Growth to 15% in 2011-12 : ICRA survey

According to the  rating agency ICRA, With a dip in the demand for fresh loans due to deep rise in interest rates &  increased pre payments, growth in the housing loan market would be 15 per cent in the current year ( 2011-12) against 18% in the last year ( 2010-11).

As a higher property prices, the ticket sizes of housing loans up and higher income levels could support the growth of  home loan. But the new notification by the housing sector regulator NHB (National Housing Bank), could affect the revenue and profitability of  HFCs (Housing Finance Corporations).

NHB had recently announced that the same floating interest rates must be charged to old and new housing loan customers. It also asked HFC's to waive penalty for pre-closure of housing loans.

Highlights of ICRA survey

* The share of HFC's in the mortgage market has increased to about 30% over the last 3 years. These may be able to maintain their market share on the strength of their focused approach, targeting of niche customer segments, relatively superior customer service, and significant growth plans (of some of the new HFCs).

* Banks are also likely to be able to hold on to a sizeable share of the market, considering their extensive network, access to stable low cost funds, and their priority sector lending mandate. The overall banking credit growth in 2010-11 was 21%.

* The teaser rate home loan portfolio of most HFCs would start getting repriced in the second half of 2011-12 onwards, and would help improve the overall yields by 0.25-0.40%, interest spreads may decline, given the sharp rise in the cost of funds in this financial year.

* If the NHB announcement calling for uniformity in charging interest for old and new customers is implemented in spirit, the competitive positioning of HFCs vis-à-vis banks could weaken.

* Credit provisioning of HFCs could increase from the 2010-11 levels by 0.15-0.25% because of the additional provisioning requirement on standard assets (housing loans).

* There could be some deterioration in asset quality, given the difficulties in the operating environment and the change in the risk profile of some HFCs, which would adversely impact credit costs by another 0.10-0.15%.

* The higher cost of funds and loan provisions could reduce the return on equity of HFCs by two-three per cent and profitability could further get impacted if lenders were to follow uniform pricing for the same loan profile, in line with NHB notification.

ICRA Limited
1105, Kailash Building, 11th Floor, 26, Kasturba Gandhi Marg, New Delhi—110001Fax: +91-11- 23357014Tel: +91-11-23357940-50;  www.icra.in

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