Synopsis–Lenders led by State Bank of India (SBI) and ICICI Bank have increased focus on home loans especially to salaried individuals as easy liquidity, secured collateral and lower real estate prices have made this segment a good business opportunity.
MUMBAI: Standalone mortgage lenders are staring at a profitability squeeze as well as loss of market share as risk wary banks turn aggressive in lending to individuals to buy homes rather than lending to corporates.
Lenders led by State Bank of India (SBI) and ICICI Bank have increased focus on home loans especially to salaried individuals as easy liquidity, secured collateral and lower real estate prices have made this segment a good business opportunity.
Funding problems faced by housing finance companies due to the heightened risk aversion due the the economic uncertainty post Covid especially during the first half of the fiscal year has also opened up the opportunity for banks to gain market share.
Last week SBI said it has crossed the Rs 5 lakh crore mark in its home loan porfolio growing ten times from just under Rs 1 lakh in 2011 and aims to increase it to Rs 7 lakh crore by 2024.
Similarly, in November 2020 ICICI Bank announced that it is the first private sector bank with a mortgage loan portfolio of Rs 2 lakh crore, and hopes to add another Rs 1 lakh crore within the next four years.
Krishnan Sitaraman, senior director at Crisil Ratings expects banks to add 1 to 2 percentage points and consolidate their dominance of the home loan market in the medium term.
Banks currently corner about 60% of the approximate Rs 20 lakh crore home loan market and are expected to add to their share helped by lower cost of funds and better access to resources.
“Since the IL&FS crisis in 2018 banks have been streadily gaining market share from NBFCs. They have been adding 1% to 2% share because of their inherent advantages like lower cost of funds and wider access to funding. The pandemic has also added to NBFCs woes though things are now getting better. Banks are sitting on a 6 lakh crore surplus liquidity as deposit growth has been faster than lending growth and home loan is a good business because of the safe collateral,” Sitaraman said.
A report by Emkay Global put SBI’s market share end of September at 24%, followed by Housing Development Finance Corp (17%), ICICI Bank (11%) and LIC Housing Finance (10%).
Sitaraman said NBFCs did well between 2014 and 2018 as funds were easily available but since then post the IL&FS crisis momentum has shifted in favour of banks as bond investors are holding back on investing in papers issued by these companies.
Indeed, it has been a question of survival for many mid size NBFCs for the better part of the last two years as funding was hard to come by. As a results many chose to conserve capital and sacrificed growth in favour of liquidity.
HFCs grew by tepid 3% in the first half of the fiscal led by a 10% growth by HDFC which corners closw to 70% of the market. Other large companies like PNB Housing Finance actually shrunk by 13% in the period highlighting the issues facing the sector. Some others like DHFL have been declared insolvent and undergoing a resolution process.
The problems of other HFCs may also lead to market share gains by HDFC even as banks also nibble away.
Renu Sud Karnad, managing director HDFC said the growth in market means there is enough space for everyone to growth.
“We have grown and have continued to gain market share. The demand for home especially in the smaller towns and cities means there is enough for everyone. The loss in some market share of NBFCs could also be attributable to companies like DHFL folding up,” Karnad said.
But banks have set their sights on home loans as the next growth area. “Going forward, home loans will continue to be a major focus area for us. The home loan book is now the single-largest portfolio in the asset base of SBI. We aim to grow it to around Rs 7 lakh crore in three years and Rs 10 lakh crore in next five,” said SBI chairman Dinesh Khara. SBI currently offers home loans at 6.65%. Khara said almost 23% of the Rs 5 lakh crore home loan portfolio comprised takeover loans.