More Bricks In The Wall...

Housing finance used to be the preserve of HDFC, but now this arena is being targeted aggressively by several players.

August 14: The State Bank of India (SBI) announces a 50 basis points cut in its five-year home loan products. The largest commercial bank in the country pierces the 10 per cent benchmark rate for home loans by offering five-year floating rate loans at 9.5 per cent and fixed rate loans at 9.75 per cent.

August 16: At a meeting with senior bankers, Reserve Bank of India (RBI) deputy governor G Muniappan cautions public sector bank chiefs against indiscriminate lending to prop up the home loan portfolio. He tells them to observe due diligence before disbursing home loans.

 

August 26: Premier housing finance company, Housing Development Finance Corporation (HDFC), is battered on the bourses. Its scrip touches a 52-week low on the Bombay Stock Exchange (BSE) at Rs 555 amid growing apprehensions among investors that HDFC is bound to lose its sheen as competition is fast catching up.

Welcome to the fiercest turf war in the Indian financial sector: a war that is destined to destroy a few myths and create new realities; it is a war that may dethrone HDFC from its numero uno position and see a few banks falling by the wayside. Consider the three most frequently asked questions over the last fortnight.

Question One: Is the RBI justified in cautioning banks against building their home loan portfolio? There is no clear answer. The bankers feel that the RBI is under pressure from the housing finance company (HFC) lobby which has had a cushy run thus far. The HFCs are feeling the heat now since banks are attacking their fortress. So they want the regulator to rein in the banks or else some of them may be wiped out.

But the HFCs deny this. Their leader, HDFC, says that it does not feel threatened. Last year, when the industry grew by 28 per cent, HDFC