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Tuesday, May 21, 2002

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Room for more in home loans space

Rajalakshmi Menon

MUMBAI, May 20

IT has never been so good for seekers of housing finance with interest rates having fallen as much as 1.5-2 per cent over the past year.

With recent cuts from market leader HDFC, the market seems to be poised for yet another spate of cuts amongst other players.

During the last fiscal, most housing finance companies and banks have cut their interest rates 2-3 times, amounting to a reduction of around 75 basis points to one per cent on housing loans. The current rates on housing loans are the lowest ever.

In the absence of any industrial growth, banks are increasingly realising the importance of housing and are aggressively targeting volumes in this business.

State Bank of India, which has cornered around 20 per cent of the market share as on December 2001 from 14 per cent as on March 2001, has cut its housing finance rates twice last year.

The SBI Chairman, Mr Janki Ballabh, said that the bank was reviewing its interest rates on housing loans.

``We expect the boom in the housing sector to continue this year as well with the industry expected to grow at around 25-30 per cent. With regard to SBI, we are targeting a growth of around 45 per cent or Rs 4,500 crore this fiscal in housing loans,'' he said.

He added that the bank had earmarked around 500 branches across the country to deal specifically in housing.

The bank's floating rate has fallen to 10.50 per cent from 12 per cent levels last year.

During the past year, the bank's housing loan portfolio has increased by 67 per cent to Rs 8,199 crore as on March 31, as compared to Rs 4,923 crore in the previous year.

Other finance companies such as HDFC, ICICI Housing Finance and LIC Housing Finance have also cut rates twice in the last fiscal.

ICICI Housing Finance Ltd (IHFL), which has a total loan book of Rs 3,000 crore, grew by around 200 per cent last year and is expected to grow at the industry rate of around 25-35 per cent this year. For a tenure of up to five years on floating rates, the company charges an interest rate of 10.5 per cent (EMI - Rs 2,149) while on fixed rates for the same period the company charges an interest rate of 11 per cent (EMI - Rs 2,175).

According to Mr Rajeev Sabarwal, Chief Operating Officer, IHFL, one of the USPs of the company is that it offers home service whereby an individual can get his loan processed at home.

The company is also offering free personal accident insurance cover.

Recently, in nine cities, the company has commenced a home search, which helps individuals find their ideal home.

A survey conducted by a leading investing banking firm states that the market share of HDFC has slipped to 49 per cent from 52 per cent during the nine month period of March to December 2001.

For a tenor of five years on fixed rates, the housing finance company's interest rate was 10 per cent (EMI - Rs 2,199) while the floating rate loan was at 11 per cent (EMI - Rs 2,255).

Meanwhile, the share of LIC Housing Finance has remained steady at 14 per cent while that of others has slipped from 14 per cent to 5 per cent.

With more and more players getting increasingly bullish on the sector, industry sources say there is room for more players as the total requirement of housing is pegged at Rs 1,50,000 crore.

With greater fillip being given to this sector through budgetary announcements as well as the RBI's credit policy, bankers say that the industry is expected to grow at around 35 per cent this fiscal.

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