HFCs may need Rs 50,000 crore capital

India would need Rs 50,000 crore of additional Tier I capital if the mortgage market grows at an annual rate of over 20% in the next five years, rating agency Icra said in a report on Wednesday.
A large part of this could come from internal capital generation, provided mortgage lenders are focused on risk-adjusted returns, the report said.

Credit growth in the Indian mortgage finance market improved to 13% in 2009-10 from 10% in the previous fiscal drawing on a healthier operating environment, expectations of appreciation in property prices, and attractive interest rate schemes offered by banks and housing finance companies, said the report. And, the growth is expected to gain momentum in 2010-11, it added.

Meanwhile, mortgage penetration levels, which had risen from around 2% as in March 2002 to a little over 7% as in March 2007, have remained at 7% levels. If penetration was to increase to 10% in five years, the mortgage market could grow at an annual rate of over 20% over this period, provided the other influencing factors remained conducive, the report said.

The rating agency said the mortgage market lacks a transparent “benchmark rate for variable rate loans”. It noted that while the implementation of a base rate could bring in more transparency, interest rates for old borrowers may still not get aligned to those offered to new borrowers. However, implementation of any such regulatory initiative could impact the profitability of mortgage lenders severely, said the report.