Sarbajeet K. Sen

New Delhi, June 17

THE ever-growing home loan market may be grabbing the attention of lenders, but the principal specialised players in the segment - the housing finance companies - are finding the going tough.

With their competitive edge blunted because of the high cost of raising funds compared to banks, housing finance companies (HFCs) are now seeking special relief from the Government to stay in the race.

"The Government should consider giving HFCs certain tax concessions that would attract more institutional investors in their bonds offerings. The bonds could be treated in the same manner as infrastructure bonds," Mr K.G. Sathyasingan, Managing Director, PNB Housing Finance Ltd, said.

Mr Sathyasingan said HFCs are put to acute disadvantage since they often find that their cost of funds are higher that the lending rates offered by banks on housing loans to their prime borrowers.

"The cost of funds of players in the housing finance market ranges from 5 per cent to 7.75 per cent. HFCs are at the higher end of the band, while banks are at the lower end."

Banks that are aggressive on the home loan front offer rates as low as 7-7.25 per cent. This is not sustainable for several HFCs because the interest rates they are forced to offer to their customers are much higher than that of their competitors, Mr Sathyasingan said.

He said that, besides accessing the debt market to raise funds through bonds issues, HFCs rely on NHB (National Housing Bank) refinance and commercial loans from banks, which are at much higher rates than the average cost of deposit of banks.

NHB extends refinance to HFCs at rates ranging from 6.25 per cent to 7.5 per cent depending on the credit rating and the tenor of the refinance sought.

Mr Barun Banerji, Vice-President, BHW Birla Home Finance Ltd, agreed that HFCs as a group are facing problems on cost of fund. However, he said that individual companies, like his own, have still managed to access funds at sharper rates.

"While it is true to a certain extent that stand-alone HFCs have a difficult time on cost of funds, we at BHW Birla are still able to access cheaper funds and lend at competitive rates. Our interest rates on housing loan start at 6.9 per cent on a variable basis," Mr Banerji said.

When contacted, NHB officials admitted that the HFCs were at a disadvantage. "There is a definite disadvantage the HFCs face as far as cost of funds is concerned. But they have to make it up by providing a faster delivery mechanism that will attract more customers," they said.

(This article was published in the Business Line print edition dated June 18, 2005)
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