HFCs may face tough competition in banks
Housing finance companies are likely to face intense competition in the mid-to-large ticket housing segment of above Rs 30 lakh, if banks reduce their marginal cost of lending rate, following cut in savings deposits rate, according to rating agency India Ratings and Research (Ind-Ra).
The agency also expects HFCs may find it challenging to expand their portfolio in the large ticket housing segment amid increasing prepayment rates on account of portfolio transfers.
“HFCs will face a margin contraction in this segment, limiting the spreads to absorb all the costs, while trying to generate reasonable returns,” Ind-Ra said in a report.
However, increased pressure on the large ticket housing portfolio together with increasing opportunity in the small ticket housing space will increase HFCs’ focus towards financing small ticket housing loans, according to the agency.
“This space is characterised by limited competition from banks and hence offers reasonable risk adjusted returns,” it said.