The assets under management (AUM) of housing finance companies are expected to grow 10-12 per cent in this financial year 2022-23, as against 8 per cent in the last financial year, mainly due to home loans, which could grow 15 per cent on-year, said CRISIL.
Last fiscal, HFC growth was a story of two halves: stunted to just about 2 per cent (annualised) in the first half because of the second wave of the pandemic, and a V-shaped 14 per cent (annualised) growth in the second half.
“Structural factors driving end-user housing demand remain intact this fiscal despite the impact of rising real estate prices and interest rates. This should drive 13-15 per cent growth in the home loan segment. And despite the recent hikes, interest rates remain below previous cycles and haven’t impacted customer interest materially,” said Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings.
Despite the growth, housing finance companies are expected to continue losing home-loan market share to banks amid stiff competition.
While access to funding is not a big challenge for most housing financiers, competitive borrowing cost is crucial versus banks, which benefit from low-cost deposit funding.
HFCs have already conceded 400 basis points market-share to banks over the past four fiscals resulting in banks’ share rising to 62 per cent as of March 2022.
This trend is unlikely to reverse in the near term. Banks are expected to gain market share further with HDFC Ltd, the largest HFC, set to merge with HDFC Bank next fiscal.
The ability of HFCs to compete with banks in the traditional salaried-home-loan segment remains a challenge given their relatively higher funding costs.
HFCs are expected to increasingly partner with banks and leverage each other’s strengths to grow their books. Some HFCs are already moving in this direction. Therefore, asset/on-book growth is likely to be lower compared with AUM growth.
Meanwhile, one segment where HFCs have been growing relatively faster is affordable housing loans, where competition from banks is limited.
Affordable housing financiers (AHFCs), therefore, have seen relatively better growth of 12-15 per cent in the recent past despite moderation from earlier levels. Given their relatively smaller footprint and large underlying demand, AHFCs are expected to keep growing faster than traditional HFCs.