HFCs may face tough competition from banks in home loan segment of above Rs. 30 lakh: India Ratings
According to rating agency India Ratings and Research (Ind-Ra), 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. 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.
Ind-Ra said in a report, “HFCs will face a margin contraction in this segment, limiting the spreads to absorb all the costs, while trying to generate reasonable returns.”
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 characterized by limited competition from banks and hence offers reasonable risk adjusted returns,” it said.
Ind-Ra estimates just about one-fifth of the total HFCs’ portfolio accounts for ticket size higher than Rs 50 lakh.