Foreign Banks, Mncs Outsourcing Housing Loans

A slew of foreign banks and multinational companies have started outsourcing their employees' housing loan portfolio from housing finance companies.

The objective is to use the captive funds for working capital lines (in case of MNCs) and reduce the administrative costs related to these loans.

Some corporates have asked housing finance major Housing Development Finance Corporation (HDFC) to manage their loans, even as these continue to be in their own books.

For housing finance companies like HDFC, taking over the management of such loans offers them a fee-based income.

HDFC handles all housing loans of government employees in the state of Karnataka through its Bangalore office. It has similar arrangements with other state governments.

Other corporates have opted to sell these loans to housing finance companies through the refinance route. This helps release working capital lines, said HDFC general manager treasury, Conrad D'Souza.

The loans taken on to the books of the housing finance companies would immediately be reflected in their capital adequacy ratios.

Following the merger of ANZ Grindlays with Standard Chartered Bank, housing loans given to Grindlays' employees will now be handled by the consumer mortgage entity.

In the case of foreign banks having forayed into housing finance, the department takes care of employee loans as well.

Many housing finance companies are also in the need to sell their loans as their capital adequacy ratio is on the borderline. HDFC is among the handful of such companies which is looking to expand its balance sheet.

"In order to enhance the return on equity, we need to grow our balance sheet and not contract it," said D'Souza. These loans are added to HDFC's retail book.

Loans to these corporates are refinanced at current housing finance rates of around 12 per cent, which is more or less equivalent to bank interest rates for working capital.

The reduction in housing finance rates makes this feasible today, said a senior official from an MNC which has refinanced its employees' housing loan portfolio with HDFC.

The corporates normally offer housing loans to their employees at concessional rates of two per cent as part of the salary package.

Often, a separate cell within the company manages the administration of these loans in terms of collections and monitoring of payments.