Search the Internet          Tips  Sites: Finance, Investment

HDFC to maintain 25-30% growth in 2001-2002

Housing Development Finance Corporation (HDFC), India's largest home-loan lender, aims to expand new lending by 25-30 per cent this year, its managing director said on Saturday, despite growing competition with rivals -- including one with 100 times more branches.

India's largest commercial bank, State Bank of India, and financial services firm ICICI both began more aggressively offering home loans in the past 20 months.

"We are bothered about competition, but we will launch new products and lay more stress on improving the services we provide," HDFC managing director Keki M Mistry said in an interview. He declined to describe the new products.

Over the past two years, HDFC has already moved to offer a wider range of borrowing options to defend its dominance in the home loan market. From offering just 15-year fixed-rate loans, it's begun offering shorter maturity loans and floating-rate 20-year loans.

Yet analysts still express concern about the competition eating into HDFC's current 60 per cent share of India's home loan market.

State-run State Bank of India last week said it aimed to increase not just its housing loan growth rate, but its entire housing loan portfolio by 60 per cent this year. It wants to boost the figure by Rs 30 billion, to nearly Rs 80 billion.

By comparison, HDFC disbursed Rs 58.05 billion in loans in the past year to March, up 29 per cent from the previous year. Its outstanding home loans total Rs 259.5 billion.

The SBI could use its vastly greater branch network to close the gap. SBI has more than 9,000 branches, HDFC just 87 branches.

HDFC also offers home loans through the branch network of HDFC Bank, India's second-largest private bank. HDFC owns 28.1 per cent of HDFC Bank.

The tech-savvy bank has a network of 126 branches, a number which includes some sites with only automated teller machines. It plans to expand to 150 branches in the near term.

Expanding market

Mistry, an accountant by training, said he expected lending by HDFC to rise 25-30 per cent in 2001-02, fuelled in large part by expanding demand for home loans.

"As property prices drop further, interest rates dip and the government makes more concessions for individuals to own houses, I am confident that the growth we have seen in the past five years can be maintained," said Mistry, who took over as managing director last November.

Home loan demand from individuals has risen as property prices fell the past three years. The central government recently also increased tax deductions on home loans in a bid to stimulate construction and arrest a slowdown in economic growth.

The tax deduction for interest paid on housing loans was raised to Rs 150,000 in April, from Rs 100,000 in the past year.

"Government statistics show the there is a shortage of 19 million dwelling units in the country. So there is enough place to co-exist," Mistry said. HDFC has in past 24 years financed more than one million dwelling units.

No capital expansion plans

HDFC, a favourite among foreign funds because of its strong financial standing and low level of loan defaults, does not have any immediate plans to tap the equity market despite growing at nearly 30 per cent, Mistry said.

"Our capital adequacy stands at 12.7 per cent, which is higher than the minimum requirement of 10 per cent. Besides we can fund growth as deposits will also rise," Mistry said.

HDFC recently hiked the foreign fund ownership limit to 49 per cent from 40 per cent after the federal budget raised the ceiling on foreign funds holdings in Indian firms to 49 per cent.

HDFC's shares have risen 22.8 per cent since the start of the calendar year to Rs 665.60 at Friday's close. The Bombay Stock Exchange 30-issue benchmark index has fallen 14.86 per cent over the same period.

Tell us what you think of this report