With the merger of the country’s largest mortgage financier, HDFC Ltd, with HDFC Bank, banks that are already major players in the mortgage lending segment are expected to gain more market share. A few years ago, housing finance companies (HFCs) had gained market share from banks in individual housing loans, but they declined after the IL&FS crisis.
According to a recent report by CRISIL, assets under management of HFCs stood at ₹13.2 lakh crore as of March 31, 2021. Since HDFC’s AUM of ₹5.69 lakh crore, accounting for 43% of the segment is now transferred to HDFC Bank, the share of real estate loans held by banks will increase further.
More than three-quarters of HFC’s loan portfolio is made up of individual home loans. The outstanding amount of individual HFC home loans as of September 2021 was ₹7.43 crore. But this represented a market share of only 32%, according to the National Housing Bank (NHB) report on “Trend and Progress of Housing in India 2021”.
Regular commercial banks take the lion’s share of individual housing loans with a market share of 68%. Banks’ market share in individual home loans increased over the year, from 62% in 2017-18 to 67% in 2019-20. Meanwhile, the market share of HFCs fell from 38% to 33% during this period.
“HDFC’s merger with HDFC Bank will lead to a greater share of the housing finance market going to banks. The market share of HFCs in this segment had increased, but it will decrease to around 25% after the merger,” an industry source said.
Experts also note that HDFC Ltd’s merger with HDFC Bank, although it will be completed in a period of about 18 months, comes at a time when the strategies of other major housing finance companies are uncertain.
The former Dewan Housing Finance Corporation Ltd is now owned by Piramal Capital and Housing Finance Company Ltd, while questions also arise over the future of LIC Housing Finance. Life Insurance Corporation of India in its DRHP has stated that either IDBI Bank or LIC Housing Finance will have to exit the home lending business by November 2023. Other big players include IndiaBulls Housing Finance and PNB Housing Finance.
“Almost all of the best HFCs are going through interesting times. The segment will eventually see more mid-to-small players come into focus,” the source noted, adding that there are only 12 HFCs that have assets under management (AUM) of more than ₹15,000 crore and five with AUMs between ₹10,000 crore and ₹15,000 crore.
Prospects for mortgage growth
In total, there are about 102 HFCs in the country. Growth prospects for home loans are also positive with strong demand for home loans, and banks and HFCs are pushing to increase their market share. The co-origination model has good participation from banks and HFCs.
Experts, however, noted that customers will remain shielded from these developments and will in fact benefit from the merger of HDFC and HDFC Bank. “Clients will benefit from the lower cost of funds available through HDFC Bank once the merger is completed,” said Deo Shankar Tripathi, Managing Director and CEO of Aadhar Housing Finance.
The merger will also give a big boost to HDFC Bank, which only has an 11% contribution from mortgages in its loan book. HDFC Ltd has total advances of ₹5.25 crore as of December 3, 2021, with individual loans accounting for 77% of its portfolio. It has 651 offices including 206 HDFC Sales outlets.
April 11, 2022