Savings bank rate cut to up competition for HFCs from banks

Mumbai: Housing finance companies are likely to face tough competition in the mid-to-large ticket segment, if banks start revising downwards their lending rates, following cut in savings rate, says a report.

Many banks including State Bank of India, Bank of Baroda, Axis Bank have reduced their saving deposit rates by 0.5 per cent.

"Housing finance companies (HFCs) are likely to face intense competition in the mid-to-large ticket housing (above Rs 30 lakh) segment, if banks were to reprice (downward) marginal cost of lending rate (MCLR), following rate cut for savings deposits," domestic rating agency India Ratings and Research said in a note here on Friday.

MCLR can face downward revision up to 35 basis points for some of public sector banks and 25 basis points for private sector banks, according to an analysis done by the rating agency.

Housing finance companies might find it challenging to expand their portfolio in the large ticket housing segment amid increasing prepayment rates on account of portfolio transfers, it said.

"HFCs will face a margin contraction in this segment, limiting the spreads to absorb all the costs, while trying to generate reasonable returns," the report said.

The agency said increased pressure on the large ticket housing portfolio together with increasing opportunity in the small ticket housing space will increase HFCs' focus towards financing small ticket housing loans.

"This space is characterised by limited competition from banks, and hence, offers reasonable risk adjusted returns," it added.