An increasingly aggressive home loan play will help banks keep gaining market share at HFCs’ expense, it said.
Data shows that banks have been consistently eating into HFC‘s market share in the past four financial years. As of March 2022, banks had a 62% share of the market.
According to Crisil, this market share trend is unlikely to change in the near term. The recent merger between pure-play home financier HDFC with HDFC Bank will only bolster the trend, the agency noted.
Affordable housing is the only area where HFCs have grown comparative quicker. This is because competition from banks are relatively less in that segment, the report said.
HFCs are set to have a hard time trying to grow their market share more than banks given their higher funding costs, Crisil observed.
It may be noted here that while most HFCs have easy access to funding, they are not on the same footing as banks which have at their disposal a big (low-cost) deposit base.
According to Crisil, “Given the challenges like thin spreads, tightening regulatory conditions and lack of depth in the corporate bond market, HFCs will need to realign their business models.”
The agency said it expected more and more HFCs to partner with banks; this way, both the partners are able to leverage on each other’s strengths. A number of such tie-ups have already happened, it said.
The agency said the core home loans segment for HFCs will grow at 15 per cent in FY23, while the growth in developer financing and loans against property will continue to be muted.
In the last financial year, HFCs’ growth story had two distinct halves. In the first half, there was just 2 per cent growth YoY due to the second Covid wave. But the second half saw a 14 per cent surge in annualised growth.