banks seek refuge in home loans, crowd onto hdfc's mortgage turf _ reuters

4/5/2014 Banks seek refuge in home loans, crowd onto HDFC's mortgage turf | Reuters

http://in.reuters.com/article/2014/01/21/hdfc-india-banks-growth-idINDEEA0K0HU20140121 1/4

BY SWATI PANDEY AND ADITI SHAH

MUMBAI Wed Jan 22, 2014 2:40am IST

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PICTURE GALLERY

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Banks seek refuge in home loans,crowd onto HDFC's mortgage turf

(Reuters) - Mortgage lender Housing Development Finance Corp

Ltd (HDFC) (HDFC.NS), loved by global investors for its steady

profit growth, faces an intensifying battle for business and

market share as banks aggressively push home loans.

With India's economic flu hitting corporate lending, banks have

cranked up efforts to tap into the country's housing loan demand,

which has proven to be brick-hard by comparison.

Demand for homes, and loans, has been stoked by a persisting

housing shortage as long-term demographic changes -

urbanisation, rising incomes, more nuclear families - transform

how and where people live in Asia's third-biggest economy.

With their eyes on the prize, banks such as state-run Bank of

India (BOI) (BOI.NS) and ICICI Bank (ICBK.NS), the biggest

private sector lender, are swarming the market with discounts

and special offers, willing to even live with narrower margins.

They are also expanding into lower-tier cities, a market that

HDFC is nurturing.

"This is a very safe business. All our branches are working hard to

grow home loans. We want to grow faster than the industry,"

said Anil Verma, BOI's chief financial officer.

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BOI is setting up branches that only sell auto and home loans,

taking five days to process a mortgage. It often takes between

two weeks and a month to get a home loan approved in India.

State Bank of India (SBI) (SBI.NS), which dethroned HDFC as

India's top mortgage lender about two years ago, was charging

mortgage interest of up to 200 basis points above its base rate in

2011. SBI is now offering home loans at just 10-30 bps above the

base rate, underscoring the intensifying competition.

SBI's home loans grew 20 percent in the September quarter from

13 percent a year earlier. ICICI doubled its mortgage growth to

23 percent, while HDFC was flat at 23 percent, according to a

report by Ambit Capital this month.

But the battle for mortgage borrowers is threatening to squeeze net interest margins

(NIMs). Analysts expect a 10-20 basis point margin decline for banks in the year ending

March 2014 from an average of 3.1 percent in 2010/11.

Brokerage Jefferies expects HDFC's NIM to ease to 4.14 percent from 4.4 percent over the

same period.

So far, HDFC's overall profitability has remained unscathed, thanks to demand for homes in

smaller cities as well as income from other businesses.

For the December quarter, net profit may have risen about 12 percent from a year earlier to

12.8 billion rupees, according to Thomson Reuters I/B/E/S.

For graphic on India's mortgage market: click link.reuters.com/dat26v

For graphic on HDFC vs index: click link.reuters.com/qat26v

MORE AGENTS, MORE MARKETS

For its part, HDFC, which counts Blackrock Inc (BLK.N), the Singapore government and

Aberdeen Asset Management (ADN.L) among its investors, is spreading into smaller cities

and towns and seeking more agents to find more mortgage borrowers.

It pays a fee to partners IndusInd Bank (INBK.NS) and Ratnakar Bank RABNK.UL to

bring in customers, and its share of business from the two banks and other agents has more

than doubled in three years to 17 percent of its total loans in the September quarter.

"We have to go out, we have to keep reaching out, we have to keep up the effort of finding

more and more agents, more and more partners who will source loans for us," HDFC CEO

Keki Mistry said in an interview last month.

HDFC is also relying increasingly on other businesses including insurance, asset

management and private equity to drive profit. In the year ended March 2013, the share of

profit from subsidiaries and associate companies more than doubled to 27 percent from 13

percent in 2008.

HDFC's stock has risen more than five times over the last decade, compared with a 263

percent gain in the wider market

It also has the highest concentration of foreign institutional ownership of stocks in the

Sensex, at more than 74 percent, according to data on the Bombay Stock Exchange.

Investors have long held it for its relatively stable returns. Its shares fell 4 percent in 2013,

but outperformed the bank index , which lost 9 percent.

SAFE BUSINESS?

SBI, which accounts for a quarter of all loans in India, expects to grow its mortgage loans

by about 20 percent in the current fiscal year.

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Smaller rival LIC Housing Finance (LICH.NS), which posted a 38 percent profit increase in

the December quarter, also expects to grow at 20 percent during the year. HDFC has a

similar projection.

"With 60 percent of India's population being below 30 years of age, all these people will in

the next three, five or seven years need housing and therefore housing loans," HDFC's

Mistry said.

While industry players say there is enough business to go around, some analysts are not as

hopeful.

"We expect NIMs of both LIC Housing Finance and HDFC Ltd to remain under pressure

over FY14-15, owing to continued pressure on incremental spreads from higher competitive

intensity," wrote Pankaj Agarwal, analyst at brokerage Ambit Capital, which has a sell

rating on HDFC.

(Editing by Tony Munroe and Ryan Woo)

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banks seek refuge in home loans, crowd onto hdfc's mortgage turf _ reuters

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