Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NHB guidelines: Calling for a structural change
Uniform rate for borrowers, no pre-payment charge, RBI to follow
NHB has issued two circular to housing finance companies (HFC): 1) NHB
has advised that HFCs should ensure uniformity in rates, on a floating rate
basis, charged to their old and new customers with the same risk profile; 2)
HFCs cannot charge prepayment penalty on pre-closure of floating rate
housing loans or a fixed rate loan, which is pre-closed by the borrowers
out of their own source of income (i.e., it is not taken over by a competitor).
NHB does not want discrimination in rates
1) Financers charge lower rate on new loans, while increasing rates on old loans
in a rising rate environment. Similarly, in a falling rate environment they offer
loans at lower rates to new customers but do not reduce rates simultaneously
for existing customers. In the last one year, lenders have increased PLR by 225-
250bp, while new loans were offered at rates 50-100bp lower vs. the old
customers; 2) Based on information available for the banks/HFCs under our
coverage, typical pre-payment penalties are up to 2% for loans transferred to
other companies that could be impacted by the circular. Given we view this as
quite low, we believe this will have a limited impact.
Uniform rates implementation difficult, will need to be incremental
The uniform loan rates will likely have a significant impact as new loans to
opening loan balances are c.50% for HFCs, based on our estimates. It is not
clear how HFCs would be required to implement this as the interest rate
differential could be high leading to complications, e.g., rates could range
between 10.5% (for new customers) to 12% (for existing customers). As
raising rates to 12.5% could be difficult, rates would have to be aligned to
the lower rate of 10.5%. This could impact margin for HFCs, and expose
them to higher interest rate volatility on ALM mismatch. We believe that
implementation will thus have to be on an incremental basis.
Changes negative, maintain Sell on HDFC, Neutral on LICHF
In addition to the changes above, we expect competition in the mortgage
space from banks to increase as loan growth in the infrastructure sector
has slowed. Of the two HFCs we cover, LICHF is currently selling mainly
fixed rate products with maturity of 3-5 years and 50% of its book is at fixed
rates and will have a relatively low impact for now. In the case of HDFC, we
believe that 15% of its new loans are on a fixed rate basis.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NHB guidelines: Calling for a structural change
Uniform rate for borrowers, no pre-payment charge, RBI to follow
NHB has issued two circular to housing finance companies (HFC): 1) NHB
has advised that HFCs should ensure uniformity in rates, on a floating rate
basis, charged to their old and new customers with the same risk profile; 2)
HFCs cannot charge prepayment penalty on pre-closure of floating rate
housing loans or a fixed rate loan, which is pre-closed by the borrowers
out of their own source of income (i.e., it is not taken over by a competitor).
NHB does not want discrimination in rates
1) Financers charge lower rate on new loans, while increasing rates on old loans
in a rising rate environment. Similarly, in a falling rate environment they offer
loans at lower rates to new customers but do not reduce rates simultaneously
for existing customers. In the last one year, lenders have increased PLR by 225-
250bp, while new loans were offered at rates 50-100bp lower vs. the old
customers; 2) Based on information available for the banks/HFCs under our
coverage, typical pre-payment penalties are up to 2% for loans transferred to
other companies that could be impacted by the circular. Given we view this as
quite low, we believe this will have a limited impact.
Uniform rates implementation difficult, will need to be incremental
The uniform loan rates will likely have a significant impact as new loans to
opening loan balances are c.50% for HFCs, based on our estimates. It is not
clear how HFCs would be required to implement this as the interest rate
differential could be high leading to complications, e.g., rates could range
between 10.5% (for new customers) to 12% (for existing customers). As
raising rates to 12.5% could be difficult, rates would have to be aligned to
the lower rate of 10.5%. This could impact margin for HFCs, and expose
them to higher interest rate volatility on ALM mismatch. We believe that
implementation will thus have to be on an incremental basis.
Changes negative, maintain Sell on HDFC, Neutral on LICHF
In addition to the changes above, we expect competition in the mortgage
space from banks to increase as loan growth in the infrastructure sector
has slowed. Of the two HFCs we cover, LICHF is currently selling mainly
fixed rate products with maturity of 3-5 years and 50% of its book is at fixed
rates and will have a relatively low impact for now. In the case of HDFC, we
believe that 15% of its new loans are on a fixed rate basis.
No comments:
Post a Comment