)
Banks have an edge over housing finance companies (HFCs) due to access to relatively low cost funds raised through deposits. Yet, the Likes of Housing Development Finance Corporation and LIC Housing Finance are formidable players. The competition is likely to change the way banks and HFCs approach and deal with customers.
Vinit Deo, chairman, Posiview Consulting, a investment banking outfit focusing on real estate, said competition will not be only on cheap loans. It will trigger innovation in housing finance products and force improvement of customer services.
Vibha Batra, senior vice-president, Icra Ratings, said: "Housing finance companies face twin challenges. Banks will become more aggressive in grabbing business. Second, banks will jostle with them to raise money through bonds. This could push cost of funds, as HFCs might have to offer higher interest rates."
After the Union Budget announcement, the Reserve Bank of India allowed banks to issue long-term money to finance long-duration infrastructure projects and offer credit for affordable housing. The money raised via bonds would not attract the Cash Reserve Ratio and Statutory Liquidity Ratio norms. This will reduce the cost of funds for banks. R K Bansal, executive director, IDBI Bank, said beside some cost advantage, banks will be in better place to managing any asset – liability mismatch.
Overall, credit growth has been tepid. The sluggish economic growth has meant negligible demand from companies.
According to rating agency Icra, the total housing credit dues were Rs 9,00,000 crore at end-March against Rs 750,000 crore as on March 31, 2013, a 20 per cent growth compared to 19 per cent in 2012-13. With banks sharpening a focus on retail home loans, this segment reported a higher growth of 18 per cent in 2013-14 versus the 15 per cent in 2012-13. This in turn led to the overall growth of 20 per cent in housing credit in 2013-14.
Growth in housing credit for HFCs and non-banking finance companies moderated from 28 per cent in 2012-13 to 23 per cent in 2013-14.
