HDFC gears up to take on competition

HDFC gears up to take on competition
ENS ECONOMIC BUREAU

CHENNAI, MAR 25: HDFC Ltd, which has a 60 per cent market share in housing finance segments, is ready to operate on thin spreads and take on competition from banks, as well as corporate segments which have recently entered housing finance.

HDFC Ltd chairman Deepak Parekh told press persons in Chennai on Friday that the company has been operating on margins of 1.8 and 1.9 per cent for a long time and has built up volumes with total sanctions amounting to Rs 30,000 crore and disbursals around Rs 24,500 crore. For the current year, total loan sanctions will be of the order of Rs 7,000 crore, while disbursals will amount to Rs 6,000 crore.

“You have to build volumes first, the spreads will come later,” Parekh noted when quizzed about competition from other banks or about corporate sector entering the segment. He said it will not be easy for a new comer to get a return of 20 per cent on networth. For HDFC Ltd, he said, the cost of funding will be lower than banks as the latter lends out of current account and savings to the housing segment, thereby creating a big mismatch between asset and liability.HDFC, he said, has a non-performing asset (NPA) base of 1 per cent for the last 22 years, and for the company it was a safe and secure business.

Parekh said HDFC has taken up with the Reserve Bank of India and regulators to reduce the risk weightage of lending to personal homes at a reasonable 50 per cent from the prevalent 100 per cent. Worldwide risk weightage for home lending is 50 per cent.

Regarding total sanctions worth Rs 30,000 crore, Tamil Nadu accounted for about 11 per cent (Rs 3,200 crore). Parekh, who opened the first HDFC property fair at Chennai, said property prices in Chennai have been stable in the last three years. The housing sector got a big boost in the Budget when interest on deductions in housing loans were raised to Rs 1.5 lakh. In the last five years the interest deductions facility has been stepped up from Rs 50,000 to Rs 1.5 lakh now.

HDFC has reduced interest rate to 12.5 per cent for a 15-year loan which will effectively mean a lending rate of 8 per cent, he said.

Parekh said the Union Budget, while reducing taxable limit of interest on fixed deposits from Rs 10,000 to Rs 2,500, will enormously increase paper work for banks and companies like HDFC. He said a representation has been made to the government to take up the cut-off limit to at least Rs 5,000 for tax purposes.Asked why HDFC has not been getting into property securitisation deals in a big way, Mr Parekh said the lack of well defined foreclosure laws was the single biggest stumbling block. Also, hindering the process was the high stamp duty and time taken to repay loans.

He said HDFC has about 8 per cent exposure to international funding. Liability to term deposits amounts to 48 per cent, while long-term domestic debentures and bonds account for another 44 per cent.

The Chennai property fair has 20 leading property developers, 119 projects, offering 2,722 flats. It will be open up to Sunday (March 25).