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NHB does an RBI, tightens HFC lending norms
The National Housing Board (NHB) announced changes to existing
regulations on the LTV ratio, provisions and risk weights for housing
finance companies (HFCs) following the RBI’s change in housing loan
regulation for commercial banks. We expect the move to tighten
lending norms, to drive up housing loan rates. The | 4200 billion (FY10)
Indian housing loan industry is expected to face an impact on its
profitability due to the 2% provisioning on teaser loans. Increase in risk
weights on loans exceeding | 75 lakh would put pressure on capital
adequacy requirements, thus pushing up rates further (refer Exhibit 1).
The major players in the Industry are HDFC, SBI, ICICI Bank and LIC
Housing Finance having a 26%, 17%, 11% and 9% market share (FY10),
respectively.
Increased provisioning to hit LIC Housing Finance profits…
We estimate that the imposition of 2% provision on teaser loans would
lead to a hit of ~5-6% on post-tax profits. This is based on the
assumption that out of the total teaser loans worth | 10000 crore, | 5000
crore require excess provisioning. Post incorporating these regulation
changes in our model, we have revised our PAT to | 809 crore and | 1017
crore (previous estimate: | 857 crore and | 1026 crore), posting a growth
of 22% YoY and 26% YoY in FY11E and FY12E, respectively.
The NBFC, which got embroiled in the bribery scam, had been under
review since November 25, 2010. We had advised investors in LICHF in
our last update to lighten their exposure to the stock by 50% (in the wake
of capital preservation) and wait for further clarity on it, going ahead.
The fundamentals are not expected to deteriorate substantially on
account of the loan scam. However, we have factored in a slightly lower
growth and foresee the scam overhang on the stock to continue in the
near term. Hence, we are revising the target price valuing the stock at 2x
FY12E ABV at | 1040.
The company has announced the record date as December31, 2010 for a
stock split in the ratio of 5:1.
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