HDFC’s gambit: selling loans through other banks

The Housing Development Finance Corporation (HDFC) has found a new way to grow its plateauing home loans portfolio in times of high lending rates and real estate prices: tie up with banks.

On Wednesday, it tied up with IndusInd Bank, and got for itself the leverage of the Hinduja Group entity’s 300 branches. Rival Yes Bank is also planning a similar partnership with HDFC.
It’s a win-win for both banks, which don’t have a mortgage business of consequence.

Currently, about 8% of the loans of HDFC are sourced from direct selling agents, including non-banking finance companies and professionals.

According to Suresh Sadagopan, who runs ladder 7 Financial Advisory Services, HDFC’s move is a bid to regain its numero uno spot from State Bank of India (SBI).

“The mortgage business doesn’t have much traction because of the very high realty prices and the rising interest rate scenario,” Sadagopan said.   

The housing loans outstanding on a year-on-year grew by 15% in March 2011, 15.2% in February and 15.1% in January, shows Reserve Bank of India data.

HDFC is currently offering loans up to Rs30 lakh at an interest rate of 9.75% per annum, loans between Rs30 to Rs75 lakh is offered at an interest rate of 10% per annum, while loans above Rs75 lakh are priced at 10.25% per annum.

While the SBI is currently offering loans up to Rs30 lakh at 9.50% per annum, loans above ¤30 lakh and up to Rs75 lakh at 9.75% per annum and loans above ¤75 lakh at 10.25% per annum.
According to Sandeep Shanbhag, director, Wonderland Consultants, “HDFC’s move will be a fruitful move only if the customer finds their rates competitive vis a vie other players in the market.”

Another analyst with a Mumbai-based brokerage firm said HDFC will not be able to compete with SBI in the near-term by resorting to this move because SBI’s rates are more competitive.
Suggestion for table: HDFC’s current home loan portfolio and the growth recorded in various quarters.