Base Rate Base Rate andand

Impact on HFCsImpact on HFCs

30th CEO’s Meeting of HFCs

Presentation by Ms. Renu S Karnad

Managing Director - HDFC

September 7, 20101

Base Rate for Bank lendingBase Rate for Bank lending

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Base Rate for Bank lendingBase Rate for Bank lending

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Base rate of banksBase rate of banks

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5.50%Bank of Tokyo Mitsubishi

7.00%DBS BankDhanalakshmi BankIndusIndHSBCYes Bank

7.25%CitibankHDFC BankKotak Mahindra BankStandard CharteredBank of Nova Scotia

7.50%Axis BankICICI BankSinhan BankState Bank of IndiaState Bank of Indore

7.75%Corporation BankDevelopmental Credit BankState Bank of Bikaner & JaipurState Bank of HyderabadState Bank of MysoreState Bank of TravancoreFederal Bank

8.00%Allahabad BankBank of BarodaBank of IndiaCanara BankCentral Bank of IndiaIDBI BankIndian BankOriental Bank of CommercePunjab National BankUCO BankUnion Bank of India

8.25%Andhra BankBank of MaharashtraDena BankIndian Overseas BankSyndicate BankUnited Bank of IndiaVijaya Bank

8.20%Punjab & Sind Bank

8.75%Karnataka Bank

8.10%South Indian

Bank8.50%

Karur Vysya Bank

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Funding Pattern of HFCs Funding Pattern of HFCs

• Major part of borrowings by HFCs is by way of bank term loans

• Market borrowings of HFCs (excluding 3 large HFCs) is around 10% of their overall liabilities.

Borrowing Profiles of All Borrowing Profiles of Mid -

HFCs as on March 2010 Sized HFCs as on March 2010 (a compilation of 17 HFCs) (after excl HDFC, LICHFL, ICICI Home Fin)

Source : ICRA

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High Vulnerability of smaller HFCs on changes in the cost of bank loan funding

HFC’s Funding Pattern : FY 2009-10HFC’s Funding Pattern : FY 2009-10Bank Borrowings as a %age of Total Borrowings Bank Borrowings as a %age of Total Borrowings

Note : Bank Borrowings includes Short-Term Bank Loans & OD

Source: Compiled from Annual Reports of HFCs

HFC Total Borrowings

Bank Borrowings

Bank Borrowings as a % age of Total

Borrowings(Rs in Crs) (Rs in Crs)

Housing Development Finance Corporation Ltd 96565 29276 30.32%

LIC Housing Finance Ltd 34758 11652 33.52%

ICICI Home Finance Company Ltd 11534 3294 28.56%

Dewan Housing Finance Corporation Ltd 8927 6452 72.27%

IDBI Home Finance Ltd 3301 2357 71.39%

GIC Housing Finance Ltd 2627 2344 89.23%

PNB Housing Finance Ltd 2656 919 34.60%

Gruh Finance Ltd 2323 900 38.74%

Sundaram BNP Paribas Home Finance Ltd 1977 250 12.64%

Can Fin Homes Ltd 1865 1137 60.95%

Bank Borrowings by HFCs Bank Borrowings by HFCs

• HFCs borrowings from Banks are generally for short term (6 months – 1 year) and normally renewed thereafter

• This enabled HFCs to take advantage of short –term rates while accessing medium-term funding from banks

• HFCs also tapped refinance from banks under their Priority Sector lending requirements, which was at relatively cheaper rates

• Post implementation of Base Rate, Banks are unable to lend below their base rates. The minimum rates charged by banks to HFCs is 8.00% to 8.25%

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Concerns Concerns • Cost of funding for HFCs has gone up

– Due to tight liquidity conditions coupled with RBI’s rate hikes, the rates of interest on other sources of funds have also risen besides the impact of higher Base Rates.

• Volatility in Funding Costs – Base Rates to be reviewed quarterly, may lead to volatility in funding

costs of HFCs – may not be able to pass on to customers as regularly

• Home Loan rates not being revised by banks – Rates on home loans offered by banks remain unchanged post the

introduction of base rate.

• Base Rate for HFCs– HFCs do not have access to CASA and hence their Base Rates will be

higher than those of Banks

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Issues relating to Priority Sector Issues relating to Priority Sector Lending Lending • In December 2009, RBI revised the guidelines for lending to

Housing Finance Companies (HFCs) by banks under priority sector.

• Under the new amendments, Banks are now required to link the tenor of loans to HFCs in line with the average portfolio maturity of loans. Banks are unable to lend to HFCs for longer durations.

• Further, the special dispensation for refinancing of loans upto Rs 20 lacs qualifying as priority sector in case of loans granted by banks to HFCs has come to an end on March 31, 2010. Currently loans upto Rs. 5 lacs qualify for Priority Sector .

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SuggestionsSuggestionsThus, need for additional / alternate sources of funds for HFCs

– Housing may be accorded ‘infrastructure’ status to enable HFCs to tap funds through tax saving bonds.

– HFCs may be permitted to access External Commercial Borrowings (infrastructure finance companies are being permitted to raise ECBs)

– Limit of Housing loans qualifying as Priority Sector to be raised to Rs. 20 lacs or else

– Permit HFCs to issue bonds and debentures which qualify as Priority Sector for the banks

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Thank you

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