HDFC, LIC Hsg: Stick to healthy HFCs as SBI cuts mortgage rate, analysts say
According to analysts, the decision of banking giants State Bank of India (SBI) and Kotak Mahindra Bank to cut mortgage rates by 10 to 15 basis points to 6.7% and 6.65%, respectively, could push investors away. clients of pure real estate financiers, in particular small players.
On Monday, SBI announced a limited-time offer and cut rates to 6.70% (for loans up to Rs 75 lakh) and 6.75% (for loans over Rs 75 lakh) until March, 31st. percent processing fee waiver.
On the upside, Kotak Mahindra Bank announced a 10 basis point reduction through March 31, to 6.65%, applicable to both home loans and balance transfer loans for all amounts. The lender will also grant a 100% waiver on the processing fee.
“Recent macroeconomic events (IL&FS crisis in 2018 and Covid-19 crisis in 2020) have created a major liquidity problem for non-banks. As a result, the benefits of lower systemic interest rates appear skewed for a few large non-banks, preventing lower-rated NBFC / HFCs from competing with banks in the prime mortgage segment, ”observes Umang Shah, Global Brokerage Analyst. HSBC, in a note co-authored with Kushan Parikh and Rahil Shah.
Gaurang Shah, senior vice president of Geojit Financial Services, said that while rate cuts by banks may provide an opportunity for larger players like HDFC and LIC Housing Finance to step up activity; it can push small HFCs with lower balances around the corner.
Why are banks a threat?
At the end of the December quarter of FY21, SBI and HDFC (including HDFC Bank) accounted for over 40 percent of the retail mortgage market. In absolute terms, SBI disbursed home loans worth 4.84 trillion rupees in the third quarter of fiscal year 21, while HDFC home loans amounted to 5.5 trillion rupees.
Kotak Mahindra Bank’s total retail loans stood at Rs 3.5 trillion, while ICICI Bank mortgages stood at Rs 2.25 trillion at the end of the third quarter of the fiscal year21 . LIC Housing Finance, on the other hand, disbursed total loans worth Rs 16,857 crore during the quarter under review.
Overall, the top 5 and 10 players represent 63% and 80% of the housing finance market, respectively, with only HDFC and LIC Housing Finance being the main non-bank players among the top 10.
“Amid concerns about asset quality, banks are moving away from corporate lending and exploiting straightforward financing options that will impact industry players… With SBI’s rate cut, the impact will be felt across the industry, ”says AK Prabhakar, head of research at IDBI Capital.
G Chokkalingam, founder and chief investment officer at Equinomics Research, estimates that the bank credit base is growing at a low figure, around 6%, which is pushing banks to make loans. They are looking for opportunities outside of basic banking solutions where real estate looks attractive, ”he says.
Those at HSBC agree and believe that banks have lowered mortgage rates thanks to the abundance of liquidity residing with them and the growing share of low-cost deposits, and the limited means to profitably deploy such liquidity. given the gradual improvement in demand for non-public credit.
Time to recognize the profits in HFCs?
Analysts equivocally believe that the low interest rate phase is in the last stage in India. While rates can’t go up anytime soon, they can’t go down either.
According to Pranjul Bhandari, chief Indian economist at HSBC, interest rates have bottomed out in the country, but the RBI may consider keeping the pension rate unchanged for the foreseeable future and use other tools to keep rates down. as low as possible.
“We expect large HFCs like HDFC and LIC Housing Finance to benefit from their strong market positioning and funding advantage, which should enable them to withstand short-term pressure from banks. The corporate segments are starting to recover. LICHF (Buy with unchanged target price of Rs 520) is our preferred choice in mortgage lending, ”analysts at the brokerage said.
“I think we are at the lower end of the rate cut path, and we may not see further cuts… Banks are striving to get a bigger share of the financing activity housing; this may impact some of the weak HFCs or smaller NBFCs that do not have the expertise to manage the cost of funds, ”says Shah of Geojit Financial Services. It remains positive on HDFC, LIC Housing Finance and Can Fin Homes.
Furthermore, even though low interest rates and government measures to revive demand in the real estate sector make Ajit Mishra, VP – Research at Religare Broking optimistic on the sector, he believes the road ahead will not be easy for him. HFCs because the competitive intensity will likely increase from now on. He recommends sticking with top players like HDFC and Can Fin Homes.
Chokkalingam, on the other hand, believes interest rates may rise soon, as commodity prices, including fuel, oil and metals, pose risks to inflation. In this context, he suggests that investors reserve their profits in pure housing financiers.
Prabhakar from IDBI Capital also likes SBI and ICICI Bank over HFCs.