The Hindu Business Line : Housing finance cos may revisit business model

Mumbai, Dec. 15 The move by public sector banks to offer lower interest rates on small value housing loans could pose a business challenge to housing finance companies in the short term.

For now, they have adopted a wait-and-watch policy, but are expected to decide on their rates soon, said officials from housing finance companies (HFCs).

Public sector banks (PSBs) had announced special rates for home loan borrowers under a package announced on Monday.

For home loans up to Rs 5 lakh, PSBs will charge an interest rate of 8.5 per cent for a maximum period of 20 years. The interest rate on home loans up to Rs 20 lakh for a maximum period of 20 years has been fixed at 9.25 per cent.

For these categories, PSU banks were charging about 10 per cent before the announcement of the new package.

Housing finance companies are charging an average of 11 per cent.

Scoring on services

Mr R.R. Nair, Director and Chief Executive, LIC Housing Finance, said the move by the public sector banks would pose a business challenge to housing finance companies.

“We would look into a revision in our business models and our lending rates,” he said.

“There has always been a difference in the bank rates and the rates offered by HFCs. People are willing to pay more to avail the hassle-free services provided by HFCs. However, HFCs would not be able to compete with bank rate. But we would need to look at what is the margin between the rates and then take a decision. The steps we would take would depend on what costs the funds are available to us.”

Around 80 per cent of LIC Housing Finance’s portfolio is in the category of loans up to Rs 20 lakh.

Wait and watch

“We are adopting a wait and watch policy,” said Mr Kapil Wadhawan, Vice-Chairman and Managing Director, Dewan Housing Finance Company.

If the cost of funds comes down, the company would pass on the benefit to the customers, he said.

Around 90 per cent of the loans given by Dewan Housing Finance are in the category of loans up to Rs 5 lakh and loans in the range of Rs 5-20 lakh, with the average loan size being around Rs 5.5 lakh.

Huge gap

However, Mr Wadhawan feels that merely a reduction in the interest rates by public sector banks may not change the situation significantly for other players in the home loan market.

“The demand and supply gap is too huge in the home loans segment. We have an advantage of being spread across 200 locations and the fact is that we concentrate exclusively on home finance, that too in the lower and middle income segments,” Mr Wadhawan said.

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