Mortgage lender Housing Development Finance Corp Ltd (HDFC), loved by global investors for its steady profit growth, faces an intensifying battle for business and market share as banks aggressively push home loans.
With India’s economic flu hitting corporate lending, banks have cranked up efforts to tap into the country’s housing loan demand, which has proven to be brick-hard by comparison. Demand for homes, and loans, has been stoked by a persisting housing shortage as long-term demographic changes — urbanisation, rising incomes, more nuclear families — transform how and where people live in Asia’s third-biggest economy.
With their eyes on the prize, banks such as state-run Bank of India (BoI) and ICICI Bank, the biggest private sector lender, are swarming the market with discounts and special offers, willing to even live with narrower margins. They are also expanding into lower-tier cities, a market that HDFC is nurturing.
“This is a very safe business. All our branches are working hard to grow home loans. We want to grow faster than the industry,” said Anil Verma, BoI’s chief financial officer. BoI is setting up branches that only sell auto and home loans, taking five days to process a mortgage. It often takes between two weeks and a month to get a home loan approved in India.
State Bank of India, which dethroned HDFC as India’s top mortgage lender about two years ago, was charging mortgage interest of up to 200 basis points above its base rate in 2011. SBI is now offering home loans at just 10-30 bps above the base rate, underscoring the intensifying competition.
SBI’s home loans grew 20 per cent in the September quarter from 13 per cent a year earlier. ICICI doubled its mortgage growth to 23 per cent, while HDFC was flat at 23 per cent, according to a report by Ambit Capital this month. But the battle for mortgage borrowers is threatening to squeeze net interest margins (NIMs). Analysts expect a 10-20 basis point margin decline for Indian banks in the year ending March 2014 from an average of 3.1 per cent in 2010/11.
Brokerage Jefferies expects HDFC’s NIM to ease to 4.14 per cent from 4.4 per cent over the same period. So far, HDFC’s overall profitability has remained unscathed, thanks to demand for homes in smaller cities as well as income from other businesses.
For its part, HDFC, which counts Blackrock Inc, the Singapore government and Aberdeen Asset Management among its investors, is spreading into smaller cities and towns and seeking more agents to find more mortgage borrowers.
SBI, which accounts for a quarter of all loans in India, expects to grow its mortgage loans by about 20 per cent in the current fiscal year. Smaller rival LIC Housing Finance, which posted a 38 per cent profit increase in the December quarter, also expects to grow at 20 per cent during the year. HDFC has a similar projection.