HFC business may be affected as banks lower rate: Report

With banks reducing their interest rates, housing finance companies business is likely to be affected and they will be forced to realign their strategies, says a report.
"The large-ticket housing loan segment primarily ticket size above Rs 5 lakh is likely to face disruption, as HFCs would be forced to realign their strategies in view of a sharp reduction in lending rates by banks. This may affect business growth for HFCs, on account of increased competitiveness of banks," domestic rating agency India Ratings and Research (Ind-Ra) said in a note today.
It said about 20 per cent of the housing portfolio of large HFCs could be higher than Rs 50 lakh in ticket size.

The competition between HFCs would have implications for profitability, especially in view of limited manoeuvrability of such companies with regard to the expansion of leverage or high-yield non-core portfolio.
The rating agency, however, said the fall in lending rates by banks is likely to incentivise borrowers to shift their portfolio from high-cost HFC loans to bank loans. Housing loans from banks do not involve prepayment charges, if borrowing is undertaken on a floating rate.
"The impact of the fall in lending rates on small-ticket loan providers is unlikely to be significant, as borrowers are generally less price-sensitive," the report said.

HFCs in this segment have a superior pricing power due to limited competition from banks.
The report further said housing loan segment, albeit the best performing asset class in the last 15 years, could come under some pressure, if underlying loan collaterals witness material price correction.
Loans where underlying property is under construction would especially be vulnerable, it added.