In a tough year, when home loan growth for banks moderated, housing finance company HDFC’s (Housing Development Finance Corporation) performance has been noteworthy. Aside from the company’s leadership position, its increasing focus on the affordable housing segment has also paid off. During the 2018 fiscal, 38 per cent of home loans approved in volume terms and 19 per cent in value terms have been to customers from the Economically Weaker section (EWS) and Low Income Group (LIG).

Steady run

Owing to the slackness in corporate lending, banks have been relying on the retail segment to drive growth. Within retail, the focus has been on housing loans, considered a less risky segment. However, given the increase in competition and pricing war within the space, growth has been slowing down over the past two years.

But even as home loan growth for banks moderated from 17-18 per cent levels (until FY16) to 15 per cent in FY17 and further to 13 per cent in FY18, HDFC’s growth in the retail segment has been steady at 23-25 per cent. Retail loans (including sale of loans to HDFC Bank) have grown by 26 per cent YoY in FY18, after 23 per cent growth in FY17. Also, the growth appears to have mainly been driven by volumes, which is a key positive.

Loan growth for HFCs is a function of price and volumes. Any pressure on home prices tend to have a greater impact on players that have grown their loan book by price increases rather than volumes. For HDFC, though, the growth in its retail loans (about 23-25 per cent over the last three years) has mainly been driven by volumes.

The Centre’s various initiatives for the affordable housing segment, such as ‘Housing for All by 2022’ and the interest subvention scheme, also appears to be taking off. For the EWS and LIG category, the Centre’s Credit Linked Subsidy Scheme (CLSS) offers an interest subvention of 6.5 per cent on housing loans up to Rs 6 lakhs for a tenure of 20 years.

For the middle-income category (MIG), the scheme offers an upfront interest subsidy of up to ₹2.3-2.35 lakh to borrowers. Referred to as CLSS-MIG, it covers two income segments — ₹6,00,001 to ₹12 lakh (MIG-I) and ₹12,00,001 to ₹18 lakh (MIG-II) per annum.

In the past one year, average lending rates within the industry have fallen by about 40-60 basis points (though rising over the past three months). HDFC has been able to maintain its spread (return on loans less cost of borrowings) within a narrow band. In the March quarter, the company’s spread on loans stood at 2.29 per cent, similar to the levels seen in the previous quarter.

HDFC’s ability to maintain a low level of delinquencies over the years has been a key positive. The gross non-performing assets (GNPA) in the December quarter were marginally down to 1.11 per cent of loans from 1.15 per cent in the December quarter.

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