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Banks may offer stiff competition to housing finance companies with regard to home loans


Banks may offer stiff competition to housing finance companies with regard to home loans

According to leading rating agency India Ratings & Research (Ind-Ra), housing finance companies are likely to feel the heat in the mid-big size housing category above Rs.30 lakhs in terms of growing competition from banks. In case the marginal cost of lending rate (MCLR) is lowered by banks after the reduction in savings deposits rates, banks pose huge competition to almost all leading housing finance companies in the country today.

India Ratings & Research also states that housing finance companies or HFCs may find it a hugely challenging task to scale up their overall portfolios in the big-ticket housing category amidst higher prepayment rates due to portfolio transfers. According to the report released by India Ratings & Research, HFCs will be forced to deal with a sizeable contraction in this market category, thereby restricting spreads for absorption of all costs while attempting to generate returns that are reasonable.

Higher pressure on the big-ticket housing portfolio combined with the growing opportunities in the small-ticket housing segment will also lead to an increase in the focus of housing finance companies (HFCs) towards providing financing for small-ticket size housing loans as per India Ratings & Research. This segment, according to the agency, usually witnesses lower levels of competition from banks and this offers reasonable returns, which are adjusted for risks.

India Ratings & Research also estimates that only 1/5th of the total portfolio of housing finance companies (approximately) makes up loans with ticket sizes exceeding Rs.50 lakhs.


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