Crisil Upgrades Five Bank-Promoted Hsg Finance Companies

BoB Housing Finance Ltd and Corpbank Homes Ltd join the big league of Housing Development Finance Corporation and LIC Housing Finance Corporation as Crisil today upgraded the outstanding fixed deposit ratings of five bank-promoted housing finance companies (HFCs). These two bank-promoted HFCs have been rated FAAA as in the case of HDFC and LICHFL.

In addition to BoB Housing, Corpbank Homes, Crisil has upgraded the ratings for PNB Housing Finance (FAA+), Vibank Housing Finance (FAA) and Cent Bank Homes (FAA).

The upgrade by the rating agency reflect Crisil's expectations of a higher degree of integration between the banks and their housing finance subsidiaries than in the past. "This follows the increasing focus by commercial banks on retail housing finance activity," pointed out Crisil executive director and chief rating officer Roopa Kudva.

 

Speaking to Business Standard, Crisil director financial sector rating S Venkataraman said: "Notwithstanding whether banks opt to take the subsidiary or the bank route to grow the retail housing loan portfolio, we see banks increasing their support and readiness to infuse capital into the business".

This follows the changing economic scenario and additional fiscal incentives given to the housing finance industry, which has seen a discernible shift in competitive dynamics in the housing finance sector. Kudva said: "For banks, expectations of lower delinquencies, inherent credit comforts in the Indian context and inclusion as priority sector credit are prominent incentives for expansion in this sector".

Banks have off late shifted their focus on the retail segment as a result of poor credit offtake in the context of industrial slowdown, and consequent asset quality pressures on corporate exposures.

Further the larger strategy of most banks has been to emphasise retail finance, especially in the area of housing finance as they can assign a lower risk weight of 50 per cent to housing loans. Many banks have thus significantly increased the size of their housing finance portfolio during the financial year 2001-02, notwithstanding the presence of their own subsidiaries.

Given the high growth potential in the sector and conducive government policies, Crisil expects this trend of direct home finance thrust by banks to continue during the medium term.

Banks having their own housing finance arms will now have to decide on the ideal vehicle for growing their business. Venkataraman said that banks will have to balance out between the advantages of both options. By undertaking housing finance business under the bank roof, it can use less capital as a result of being able to assign a lower weightage of 50 per cent.

Further, banks have to maintain a nine per cent capital adequacy ratio as compared to 12 per cent directed for HFCs. At the same time, HFCs have a higher tax benefit compared to banks.

Those banks opting to continue with the subsidiary route are expected to increase financial support to the subsidiary, and offer co-branded products and better co-ordination in terms of marketing services and increased management inputs.