Home loan growth to moderate to 15%: Icra study

With a dip in the demand for fresh loans due to sharp rise in interest rates and increased prepayments, growth in the mortgage (home loan) market would be 15 per cent in 2011-12 against 18 per cent in 2010-11, says an Icra study.

According to the rating agency, higher ticket sizes (as a result of higher property prices) and higher income levels could support the growth of mortgage credit. But the new notification by sector regulator National Housing Bank (NHB), could affect the profitability of Housing Finance Corporations (HFCs).

NHB, the regulator for HFCs, had recently announced that the same floating interest rates must be charged to old and new home loan customers. It also asked HFC to waive penalty for pre-closure of housing loans.

 

The share of HFCs in the mortgage market has increased to around 31 per cent over the last three years. These may be able to maintain their market share on the strength of their focused approach, targeting of niche customer segments, relatively superior customer service, and significant growth plans (of some of the new HFCs). However, banks are also likely to be able to hold on to a sizeable share of the market, considering their extensive network, access to stable low-cost funds, and their priority sector lending mandate, said the survey. The overall banking credit growth in 2010-11 was 21 per cent.

Though the teaser rate home loan portfolio of most HFCs would start getting repriced in the second half of 2011-12 onwards, and would help improve the overall yields by 25-40 basis points, interest spreads may decline, given the sharp rise in the cost of funds in this financial year.

The study further explains that if the NHB announcement calling for uniformity in charging interest for old and new customers is implemented in spirit, the competitive positioning of HFCs vis-à-vis banks could weaken.

Icra says credit provisioning of HFCs could increase from the 2010-11 levels by 15-25 basis points because of the additional provisioning requirement on standard assets (home loans). Further, Icra said that there could be some deterioration in asset quality, given the difficulties in the operating environment and the change in the risk profile of some HFCs, which would adversely impact credit costs by another 10-15 basis points.

Icra also said higher cost of funds and credit provisions could reduce the return on equity of HFCs by two-three per cent and profitability could further get impacted if lenders were to follow uniform pricing for the same credit profile, in line with NHB notification.