A laborer fixes a billboard, displaying an Indiabulls home loan advertisement, in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)  

Customers Turn To Banks As Housing Finance Companies Continue To Pull Back

Six months after debt defaults by Infrastructure Leasing and Financial Services hit the markets, non-bank lenders including housing finance companies, continue to face tight liquidity conditions. The result is far slower growth in disbursements from these lenders and a shift towards banks.

Disbursements from two large HFCs — Dewan Housing Finance Ltd and Indiabulls Housing Finance Ltd — have remained weak in the January-March quarter, said bankers and financiers familiar with market conditions.

In the December 2018 ended quarter, disbursements by DHFL fell 96 percent quarter-on-quarter to a mere Rs 510 crore. While earnings for the March-ended quarter have not yet been released, rating agency CRISIL recently downgraded DHFL’s bonds saying that liquidity generation by the firm had been slower than anticipated, suggesting that disbursements may have remained weak in the fourth quarter. DHFL did not respond to an email seeking clarity on funds disbursed during the quarter.

In the case of Indiabulls Housing Finance, disbursements fell 65 percent in the third quarter over the previous three months. The company saw an improvement in the January-March quarter, but disbursements still remain below normal. The company reached about 70 percent of its disbursement target in the three-months ended March, as compared with 40 percent in the October-December period, Ashwini Kumar Hooda, deputy managing director at Indiabulls Housing Finance told BloombergQuint. The company was averaging disbursements of about Rs 10,000 crore every quarter before the crisis hit, Hooda said.

In this liquidity-constrained environment, Credit Suisse expects disbursement growth for the top HFCs to remain below last year’s levels, it noted in a report issued last month.

Customers Turn To Banks As Housing Finance Companies Continue To Pull Back

Advantage Banks

With HFCs pulling back on their recent aggression to garner market share, banks are stepping back in.

Lenders like ICICI Bank and Bank of Baroda told BloombergQuint that they have seen improved demand from customers who have been denied disbursements by housing finance companies.

According to Anup Bagchi, executive director at ICICI Bank, the private sector lender has seen incremental home loan demand flowing in from customers of certain housing finance companies. That, together with the organic increase in home loan demand, will allow the bank to increase its home loan portfolio to Rs 2 lakh crore by March 2020 from Rs 1.7 lakh crore currently.

VK Sethi, head of mortgage business at Bank of Baroda, said that his bank has seen a similar trend. Bank of Baroda is hoping to close this financial year with a 30 percent year-on-year growth in its home loan portfolio which stood at Rs 51,319 crore as of December 2018.

India’s largest lender State Bank of India, however, said that it has not seen any significant increase in demand for home loans. The bank has a home loan book of Rs 3.8 lakh crore, which continues to grow at about 17 percent year-on-year, said P.K. Gupta, managing director at SBI.

This environment is allowing banks to step in and take away a chunk of the incoming business...The home loan market is likely to grow by 13-15 percent for the whole year, with banks bringing in most of the growth.
Supreeta Nijjar, Vice President, ICRA Ltd.

To be sure, it is not just banks which are stepping in to capture the market left open by the liquidity-constrained HFCs.

Mid-sized housing finance companies like IIFL Housing Finance Ltd and Repco Home Finance, which are active in the affordable housing finance space, have also seen a spike in loan demand.

Yashpal Gupta, managing director and chief executive officer at Chennai-based Repco Home Finance acknowledged that they were seeing interest from home buyers who were earlier customers of liquidity-constrained HFCs. However, Monu Ratra, executive director and chief executive officer of IIFL said that the fourth quarter usually sees faster growth. As such, it is difficult to say whether the pull-back from larger players is the reason behind the pick-up in demand, Ratra said.

Slowing Aggregate Growth?

While market share in the home loan market may be shifting, some bankers remain skeptical about overall demand conditions.

Sudhin Choksi, managing director and chief executive officer, Gruh Finance Ltd said that home loan demand may remain weak in the first six months of the year. According to Choksi, customers looking to buy new homes would prefer to defer their plans for a few months rather than buy in a market where certain lenders are not participating.

A February survey by Knight Frank India, NAREDCO and FICCI also threw up subdued sentiment. About 51 percent of the respondents agreed that growth in residential real estate sales has either remained the same or worsened in the October-December 2018 period, with the situation likely to continue for the first six months of 2019.