Realty bites lenders
Jul 26, 2012
Source : Financial Chronicle


Domestic lenders hit by real estate downturn, are growing their home loan book size by exploring new markets and adopting aggressive marketing strategies
As real estate sector faces a downturn, domestic lenders with major retail loan exposure are busy reworking their strategies. Luckily for them, new emerging markets are more than making up for the loss of business from Mumbai, as the Mecca of real estate continues to be in the throes of a demand slump. Pune, Bhopal, Indore, Surat, Nagpur and Ahmedabad are the new hubs of growth, along with Delhi-NCR, Chennai and Hyderabad.
Almost every home financier has pushed up their lending in the new financial year. HDFC, LIC Housing Finance and Axis Bank, whose quarterly financial results are out, have grown their home loan book by exploring new markets and aggressive marketing strategies.
Keki Mistry, chief executive and vice-chairman of HDFC, India’s second largest home financier after the State Bank of India (SBI), is happy to see the growth coming from across centres when Mumbai’s island city is hit by a slump. “We have seen growth from all geographies. Suburban Mumbai, Chennai and NCR have done well. About 70 per cent of the growth is still from the metros and urban centres. Increasing urbanisation and a young demographic profile keep the demand for home loans buoyant,” says Mistry.
His company expanded its home loan book by Rs 6,635.07 crore in the first quarter (April-June) to Rs 95,400 crore.
LIC Housing Finance, which has the third largest portfolio of home loans at Rs 65,644 crore beating ICICI Bank, the biggest player in the market until 2006, finds the market extremely challenging. Its director and chief executive VK Sharma said the business environment has been very challenging. “However, we have been able to grow our new disbursals despite the odds, and are confident of maintaining a healthy growth rate for the rest of the year. Margins have been under strain owing to the high interest rate regime and high borrowing costs that has prevailed during the quarter and a lower developer loan portfolio. In April-June quarter, developer loan disbursals have started to improve, which is likely to help increase the margins going forward,” says Sharma.
In the individual loan category, LIC Housing Finance sanctioned Rs 4,900 crore loans, a growth of 33 per cent over the corresponding period of last year, whereas, the disbursements was Rs 4,470 crore, a growth of 29 per cent.
The third largest private sector bank, Axis Bank, wants to grow its retail assets, specially the mortgages, quite aggressively. The bank plans to increase retail advances to 30 per cent of the total advances, from 22 per cent at present by 2015. At the end of the first quarter, Axis Bank’s retail book had a year-on-year growth of 50 per cent to Rs 40,591 crore, of which, 75 per cent was home loans, about Rs 28,000 crore, increasing Rs 2,266 crore just in the first quarter. Diversification of products is expected to reduce the share of mortgages to 60 per cent by 2015. Along with home loan book, the bank also has a four per cent component of loans-against-property. The bank wants to focus on such loans so as to enhance its returns.
Jairam Sridharan, senior vice-president (consumer lending and payments), Axis Bank, told FC Build that the growth has come from non-metro cities. “About 60 per cent of our growth has come from outside the metros, from cities such as Pune, Surat, Ahmedabad and Baroda. We have been focussing on smaller markets and tapping latent demand in these markets. The southern markets are doing very well. We have reduced the turnaround time of the loans so that customer does not have to wait too long for sanctions.”
For SBI, the largest home loan lender, the pace of growth is dropping. From a 16.30 per cent year-on-year growth at the end of the third quarter ended December 2011, its growth has slipped to 14.26 per cent at the end of fourth quarter ended March 31. Incrementally, the portfolio expanded by Rs 3,720 crore at the end of the fourth quarter. At the end of the first quarter ended June 30, the bank has managed to grow its book by just Rs 2,300 crore. However, the final figures are still being collated.
Pradeep Khosla, chief general manager in-charge of the home loan portfolio, SBI, believes that the first quarter has seen a growth of Rs 2,600 crore of fresh loans. “But the first quarter is not a representative quarter. Growth is coming from the metros and tier-I and tier-II cities. Since, SBI has a large branch network, the growth is spread across various geographies,” says Khosla.
Sanjay Gupta, chief executive officer of PNB Housing Finance, the wholly-owned subsidiary of Punjab National Bank, said, “We have grown about 10 per cent incrementally over the preceding quarter and about 25 per cent over the same time last year. The growth has been spread out in cities like Pune, Indore, Bhopal, Nagpur, and Delhi-NCR continues to be promising.”
But, overall, the pace of growth has come down. According to the last available consolidated figures from the Reserve bank of India (RBI), the total home loan outstanding of banks was Rs 4,08,640 crore as on May 18, which is a 14 per cent growth over the previous year. The growth in May 2011 over the previous year was 17 per cent.
The growth in the real estate market reflects directly on the country’s economic growth. According to industry officials, while there is some movement in the residential segment, fresh commercial real estate development has come to a near standstill. “In the residential segment, it is Chennai, and now Hyderabad, that are strong with genuine buyers. Delhi-NCR is also doing well, but, it is mostly investors buying into various projects in the region. High real estate prices is putting off buyers in Mumbai,” says a senior banker.
Mortgages as a percentage of gross domestic product (GDP) is only eight per cent in India, while in the US, it is as high as 77 per cent. For other Asian peers such as China, it is 20 per cent. In Thailand, the ratio is 17 per cent, while in Denmark, it is 101 per cent, which leaves a lot of scope for growth.
A senior official of a US-based real estate fund with investment in India said they have a corpus of $300 million in India, most of which is invested. “We found genuine buyers in Hyderabad and Chennai. We would like to get into more lucrative investments like township development.”
The largest private bank by assets, ICICI Bank, is also gradually growing its home loan portfolio, the most important part of its retail loans. From Rs 54,713.6 crore at the end of the third quarter ended December 2011, its total exposure went up to Rs 57,664 at the end of the fourth quarter ended March. The first quarter figures are yet to be reported.
Most public sector banks that were essentially wholesale lenders, are now turning their focus on the home loan segment to grow their advances book, both to increase their credit growth, and thereby get low-cost deposits through current accounts and saving accounts.

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