Housing finance companies (HFCs) are likely to face competition in the mid-to-large ticket housing (above Rs 30 lakh) segment if banks were to reduce marginal cost of lending rate following rate cut for savings deposits, according to Ind-Ra.
HFCs might find it challenging to expand their portfolio in the large ticket housing segment amid increasing prepayment rates on account of portfolio transfers. The agency believes HFCs will face a margin contraction in this segment, limiting the spreads to absorb all the costs, while trying to generate reasonable returns. Ind-Ra estimates about one-fifth of the total HFCs’ portfolio to be of ticket size higher than Rs 50 lakh.
The current spread between State Bank of India’s MCLR rate and a five-year AAA yield curve rate is 74 basis points. This will contract as the rating of the borrower goes down the curve. According to Ind-Ra’s sensitivity analysis, MCLR can face downward revision up to 35 bps for some of public sector banks (25 bps for private sector banks).
Ind-Ra believes the 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.
Deccan Herald is on WhatsApp Channels| Join now for Breaking News & Editor's Picks