 "Housing Finance shares in focus; Can Fin Homes hits record high")
Shares of housing finance companies (HFCs) are in focus rallying by up to 9% on the BSE in intra-day trade on expectation of the government’s focus on affordable housing and favourable regulations could push overall housing credit growth, which could lead to improved mortgage penetration.
Among the individual stocks, Can Fin Homes gained 4% to Rs 1,004 also its record high on the Bombay Stock Exchange (BSE), during intra-day today. GIC Housing Finance surged 9% to Rs 208, while Dewan Housing Finance Corporation up 4% at Rs 232.
LIC Housing Finance (3% at Rs 489), Repco Home Finance (3% at Rs 748), Gruh Finance (2% at Rs 267) and Housing Development Finance Corporation (up 1% at Rs 1,290) were up in the range of 1% to 3% on the BSE.
Priyanka Somani analyst at CD Equisearch said “the housing finance sector shows signs of having a bright future in the years to come due to reasons like increase in employment and income, availability of more disposable income in the hands of the individual, improved living standards, increase in urbanization, the emergence and continuation nuclear family set up and easy availability of finance/loans at lower rate of interest”.
Since September 29, post the Reserve Bank of India (RBI) policy, most of these stocks have rallied between 7%-16% compared to 6% rise in the Sensex.
In its recent bi-monthly monetary policy statement of FY16, the RBI announced the lowering of risk weights on low-ticket home loans to encourage banks to lend more to the smaller ticket home loan segment. A similar reduction in risk weighs could also be subsequently announced by National Housing Bank (NHB) for HFC. This might encourage the banks/HFCs to lend more to the smaller ticket home loan segment, as it would help them in conserving capital, ICRA Research said in recent report.
Meanwhile, Moody's Investors Service expects that non-banking financial companies (NBFCs) in India will see their asset quality stabilize over the next 12 months, although the reported nonperforming loans (NPLs) ratio may increase due to changing recognition norms.
"The ongoing tightening of NPL recognition norms mean that the minimum standards for NBFCs will match those of banks, a credit positive," says Srikanth Vadlamani, a Moody's Vice President and Senior Credit Officer.
Liquidity management is particularly problematic for housing finance companies—which exhibit average asset durations of about seven years—because there is limited lender appetite for long-dated paper with tenures in excess of five years.
In addition, because housing finance companies' assets are mainly floating-rate, any mismatches will be exacerbated if interest rates continue to fall, notes Moody's.
Bank of America Merrill Lynch expects the new guidelines to give a strong fillip to the housing loan market in India, as the RBI has raised the minimum home loan size to Rs 30 lakh from Rs 20 lakh, which will attract a lower risk weight of 35% vs. 50% earlier. This effectively implies a home loan ticket size of Rs 37.50 lakh.
This is likely to help the banks to price housing loans better and generate higher returns. This is likely to provide upside to our expected home loan growth of 18-20%, it added.
Among the individual stocks, Can Fin Homes gained 4% to Rs 1,004 also its record high on the Bombay Stock Exchange (BSE), during intra-day today. GIC Housing Finance surged 9% to Rs 208, while Dewan Housing Finance Corporation up 4% at Rs 232.
LIC Housing Finance (3% at Rs 489), Repco Home Finance (3% at Rs 748), Gruh Finance (2% at Rs 267) and Housing Development Finance Corporation (up 1% at Rs 1,290) were up in the range of 1% to 3% on the BSE.
Priyanka Somani analyst at CD Equisearch said “the housing finance sector shows signs of having a bright future in the years to come due to reasons like increase in employment and income, availability of more disposable income in the hands of the individual, improved living standards, increase in urbanization, the emergence and continuation nuclear family set up and easy availability of finance/loans at lower rate of interest”.
Since September 29, post the Reserve Bank of India (RBI) policy, most of these stocks have rallied between 7%-16% compared to 6% rise in the Sensex.
In its recent bi-monthly monetary policy statement of FY16, the RBI announced the lowering of risk weights on low-ticket home loans to encourage banks to lend more to the smaller ticket home loan segment. A similar reduction in risk weighs could also be subsequently announced by National Housing Bank (NHB) for HFC. This might encourage the banks/HFCs to lend more to the smaller ticket home loan segment, as it would help them in conserving capital, ICRA Research said in recent report.
Meanwhile, Moody's Investors Service expects that non-banking financial companies (NBFCs) in India will see their asset quality stabilize over the next 12 months, although the reported nonperforming loans (NPLs) ratio may increase due to changing recognition norms.
"The ongoing tightening of NPL recognition norms mean that the minimum standards for NBFCs will match those of banks, a credit positive," says Srikanth Vadlamani, a Moody's Vice President and Senior Credit Officer.
Liquidity management is particularly problematic for housing finance companies—which exhibit average asset durations of about seven years—because there is limited lender appetite for long-dated paper with tenures in excess of five years.
In addition, because housing finance companies' assets are mainly floating-rate, any mismatches will be exacerbated if interest rates continue to fall, notes Moody's.
Bank of America Merrill Lynch expects the new guidelines to give a strong fillip to the housing loan market in India, as the RBI has raised the minimum home loan size to Rs 30 lakh from Rs 20 lakh, which will attract a lower risk weight of 35% vs. 50% earlier. This effectively implies a home loan ticket size of Rs 37.50 lakh.
This is likely to help the banks to price housing loans better and generate higher returns. This is likely to provide upside to our expected home loan growth of 18-20%, it added.