The prospects for housing finance companies are good but they also face risks of asset-liability mismatch, deterioration in asset quality and higher cost of funds, says Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services LLP.
Given the slowdown in industrial and corporate credit, banks and finance companies have turned their attention to the retail segment covering loans for housing, consumer durables and vehicles. Lenders have become particularly aggressive in housing finance, which is a secured loan portfolio with lower incidence of default.
Bankers associated with mortgage finance say many public sector banks may not be able to capitalise on this growing opportunity as they struggle with stressed loans and raising capital to meet regulatory norms. These banks will cede space to housing finance companies and private banks.
Another factor at work is the government's thrust on housing for all by 2022. Since March 2015, 23 new housing finance companies have received licences and most of these cater to the under-penetrated affordable housing segment. The Tatas, Birlas, Bajaj Finserv and Reliance Capital are betting big on housing finance. Established players like HDFC, LIC Housing Finance, Dewan Housing Finance, Indiabulls Housing Finance and PNB Housing Finance are ready to protect their turf.
The pace of growth in housing finance has moderated in 2016-17. Housing credit growth slowed to 16 per cent in 2016-17 from 19 per cent in 2015-16. The decline for banks was greater from 18 per cent to 15 per cent, largely because they were tied up with demonetisation.
Growth was also affected by a slowdown in new project launches and buyers and investors deferring home purchases on expectations of a decline in real estate prices, according to ICRA.