HDFC rides the coat tails of the real estate recovery

In this context, Housing Development Finance Corp. Ltd (HDFC) is set to see a boost in loan growth in the current and the coming quarters. As such, India’s largest non-bank home loan financier had indicated that disbursements will rise once the curbs imposed because of the second wave are lifted.

HDFC’s home loan disbursement grew 14% month-on-month in July, analysts at Jefferies India Pvt. Ltd said. “Momentum in August is also quite strong. Better affordability, increasing preference for bigger houses and the feel-good factor following a rally in the equity markets have been key enablers," they said in a report.

Cheaper loan rates are making it easier for Indians to decide on home purchases. However, the home loan market is intensely competitive. Kotak Mahindra Bank Ltd has announced a special festive offer of home loans at an interest rate of 6.5%, which is 50 basis points lower than HDFC’s cheapest home loan rate. One basis point is one-hundredth of a percentage point.

The festival season is here and real estate firms are back with gusto, launching new projects in metros. In general, the revival in realty after the second covid wave is encouraging and the biggest beneficiaries other than realty firms themselves are lenders to this sector.

In this context, Housing Development Finance Corp. Ltd (HDFC) is set to see a boost in loan growth in the current and the coming quarters. As such, India’s largest non-bank home loan financier had indicated that disbursements will rise once the curbs imposed because of the second wave are lifted.

HDFC’s home loan disbursement grew 14% month-on-month in July, analysts at Jefferies India Pvt. Ltd said. “Momentum in August is also quite strong. Better affordability, increasing preference for bigger houses and the feel-good factor following a rally in the equity markets have been key enablers," they said in a report.

Cheaper loan rates are making it easier for Indians to decide on home purchases. However, the home loan market is intensely competitive. Kotak Mahindra Bank Ltd has announced a special festive offer of home loans at an interest rate of 6.5%, which is 50 basis points lower than HDFC’s cheapest home loan rate. One basis point is one-hundredth of a percentage point.

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Home loans being the safest asset class, banks are falling over each other to woo customers at a time when credit growth is hard to come by. The pandemic has made assessing risks in the lending process difficult and that has prompted lenders to pursue the secured housing market.

It remains to be seen whether the intensified competition through festive offers from banks may impact HDFC’s growth.

Historically, the lender has maintained its growth rate and often outperformed its rivals. Loans to realty companies have been a pain point for most lenders and this is a market where banks have remained cautious.

HDFC’s non-individual book has shrunk in the wake of covid-19 but it has indicated that growth would come back in the second half. The spurt in project launches also augurs well for construction finance, analysts pointed out.

Home loan growth is expected to improve for all lenders. However, what sets apart HDFC is its practice of keeping provisions in excess of regulatory requirements. The lender had ₹13,189 crore as provisions as of June, three times more than needed.

Other non-bank peers do not stack up to this level of insurance. Banks have been beefing up provisions, but stressed loans continue to outpace this.

As long as HDFC continues with its stellar provisions, its premium valuations would stick, analysts said. Shares have gained 14% since July, outpacing the 10% gain in the broader Nifty in the period.