* HDFC Dec quarter net profit rise 12 pct, meets estimates
* SBI, ICICI, other lenders expect to grow home loans by
* Intensifying competition in home loans segment threatens
By Swati Pandey and Aditi Shah
MUMBAI, Jan 22 Indian mortgage lender Housing
Development Finance Corp Ltd (HDFC), loved by global
investors for its steady profit growth, faces an intensifying
battle for business and market share as banks aggressively push
With India's economic flu hitting corporate lending, banks
have cranked up efforts to tap into the country's housing loan
demand, which has proven to be brick-hard by comparison.
Demand for homes, and loans, has been stoked by a persisting
housing shortage as long-term demographic changes -
urbanisation, rising incomes, more nuclear families - transform
how and where people live in Asia's third-biggest economy.
With their eyes on the prize, banks such as state-run Bank
of India (BOI) and ICICI Bank, the biggest
private sector lender, are swarming the market with discounts
and special offers, willing to even live with narrower margins.
They are also expanding into lower-tier cities, a market that
HDFC is nurturing.
"This is a very safe business. All our branches are working
hard to grow home loans. We want to grow faster than the
industry," said Anil Verma, BOI's chief financial officer.
BOI is setting up branches that only sell auto and home
loans, taking five days to process a mortgage. It often takes
between two weeks and a month to get a home loan approved in
State Bank of India (SBI), which dethroned HDFC as
India's top mortgage lender about two years ago, was charging
mortgage interest of up to 200 basis points above its base rate
in 2011. SBI is now offering home loans at just 10-30 bps above
the base rate, underscoring the intensifying competition.
SBI's home loans grew 20 percent in the September quarter
from 13 percent a year earlier. ICICI doubled its mortgage
growth to 23 percent, while HDFC was flat at 23 percent,
according to a report by Ambit Capital this month.
But the battle for mortgage borrowers is threatening to
squeeze net interest margins (NIMs). Analysts expect a 10-20
basis point margin decline for Indian banks in the year ending
March 2014 from an average of 3.1 percent in 2010/11.
Brokerage Jefferies expects HDFC's NIM to ease to 4.14
percent from 4.4 percent over the same period.
So far, HDFC's overall profitability has remained unscathed,
thanks to demand for homes in smaller cities as well as income
from other businesses.
For the December quarter, net profit grew 12 percent to 12.8
billion rupees ($206.92 million), in line with estimates. Net
interest margin for the nine months ended December was at 4
percent, compared with 4.06 percent a year earlier.
Chief Executive Keki Mistry said on Wednesday that the
competitive pressure had not hurt HDFC's market share.
"We don't believe that there has been any change in market
share numbers. One percent up, one percent down sometimes
happens on a month-to-month basis, but we have not seen any
change," Mistry told reporters after HDFC announced its results.
MORE AGENTS, MORE MARKETS
For its part, HDFC, which counts Blackrock Inc, the
Singapore government and Aberdeen Asset Management among
its investors, is spreading into smaller cities and towns and
seeking more agents to find more mortgage borrowers.
It pays a fee to partners IndusInd Bank and
Ratnakar Bank to bring in customers, and its share of
business from the two banks and other agents has more than
doubled in three years to 17 percent of its total loans in the
"We have to go out, we have to keep reaching out, we have to
keep up the effort of finding more and more agents, more and
more partners who will source loans for us," Mistry said in an
interview last month.
HDFC is also relying increasingly on other businesses
including insurance, asset management and private equity to
drive profit. In the year ended March 2013, the share of profit
from subsidiaries and associate companies more than doubled to
27 percent from 13 percent in 2008.
HDFC's stock has risen more than five times over the last
decade, compared with a 263 percent gain in the wider market
It also has the highest concentration of foreign
institutional ownership of stocks in the Sensex, at more than 74
percent, according to data on the Bombay Stock Exchange.
Investors have long held it for its relatively stable
returns. Its shares fell 4 percent in 2013, but outperformed the
bank index, which lost 9 percent.
SBI, which accounts for a quarter of all loans in India,
expects to grow its mortgage loans by about 20 percent in the
current fiscal year.
Smaller rival LIC Housing Finance, which posted a
38 percent profit increase in the December quarter, also expects
to grow at 20 percent during the year. HDFC has a similar
"With 60 percent of India's population being below 30 years
of age, all these people will in the next three, five or seven
years need housing and therefore housing loans," HDFC's Mistry
While industry players say there is enough business to go
around, some analysts are not as hopeful.
"We expect NIMs of both LIC Housing Finance and HDFC Ltd to
remain under pressure over FY14-15, owing to continued pressure
on incremental spreads from higher competitive intensity," wrote
Pankaj Agarwal, analyst at brokerage Ambit Capital, which has a
sell rating on HDFC.