The housing finance sector in our country is assisted by two regulators, the Reserve Bank of India and the National Housing Bank where the Centre and the state governments are the facilitators.
While the commercial banks are dominating the housing finance markets, other emerging big players are the cooperative banks, housing finance companies, self-help groups and micro finance institutions. The RBI regulates the commercial banks and partially the cooperative banks (which are mainly governed by the State Cooperative under State Cooperative Act), while on the other hand the NHB regulates the housing finance companies. The country’s total housing loan portfolio is around Rs 15 lakh crore and out of which the housing finance companies manage over Rs 6 lakh crore. Over the years, the housing finance companies created an alternative market in the housing finance space by offering newer products such as loan against property (LAP), corporate and developer loans and lease rental discounting.
Housing is an important sector for any economy and has a direct impact on employment generation, GDP growth and economic consumption pattern. To have a developed robust housing sector in the country, it is important to have a well developed housing finance market also. After the IL&FS fiasco, NBFC and HFC have come under the scanner and their stocks have taken a terrible beating on the stock exchanges. Housing finance companies do not have adequate pricing power to pass on the entire cost of funds as they operate on relatively narrow margins and hence mortgage lenders with higher share of borrowings can be hurt the most.
One solution would be to periodically review the Asset Quality and gross bad loan book profile of the NBFC and housing finance companies for the long term health of the sector. LIC Housing Finance Ltd/LIC HFL is the housing finance arm of India’s largest insurer and a blue chip company in the sector. It reported an increase of 12% in its net profit at Rs 573 crore for the quarter ended September 2018 and the total income rose to Rs 4,202 crore for the same period. The gross non-performing assets stood at 1.20% for the same quarter under review. The tightening liquidity business environment can be beneficial for LIC HFL, as there could be a shake-up in the changing competitive dynamics going forward. Smaller players with lower credit ratings and moderating price wars could reduce competition and improve return on assets. An analyst has rightly assessed the current situation that the housing finance companies which were using the strategy of “borrowing for short term and lending for long term periods” have come into problems. But companies with strong parentage and high credit rating like LIC HFL are capable of borrowing at lower rates, resulting in higher margins. The LIC HFL stock currently quoting at Rs 462 is a good buy for one year’s investment horizon, with a 30% price appreciation.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.