How Affordable Housing Is Helping India’s Banks Register Profits

When the government decided to provide housing to all by 2022, it set for itself quite an ambitious target. Looking at the progress it has made so far on building homes under the Pradhan Mantri Awas Yojana, it looks quite difficult that the government will be able to meet the deadline. Official data show only 75 per cent of the target set for 2016-18 has been met in rural areas so far. The state of affairs in urban areas is bleaker. Only 3.39 lakh of the approved 40.62 lakh homes have been completed across the country under the Pradhan Mantri Awas Yojana-Urban as on March 5. In India’s financial capital Mumbai, not one house has been built against the set target of 1.97 lakh.

However, the banking sector seems to be benefitting from the government’s push for affordable housing. Results for the March quarter show major financial institutions in the country are registering growth, on the back of affordable housing.

India’s biggest mortgage lender HDFC, for instance, has reported a 39.2 per cent annual increase in its standalone net profit for the first quarter of the current financial year. The bank’s individual home loan business also grew 31 per cent during the same period. About 38 per cent of the total number of approved home loans was sanctioned to the economically weaker sections and the low-income group. 

Non-bank mortgager Diwan Housing Finance Ltd (DHFL) has also reported a 26 per cent net profit. According to company Joint Managing Director and Chief Executive Officer, Harshil Mehta profitability has come from the home loan portfolio, which is two-third of the overall book. The NBFC has seen good growth in both “home loan and loan against property business”.

The positive impact of the government’s affordable housing push is not limited to profits alone; banks are also changing their strategy to make the most of the opportunity the Centre’s housing-for-all mission provides them.

Recently, ICICI Bank also said it has decided to shelve its plan to sell ICICI Home Finance (IHF). The private lender has been trying to make a deal for the past two years; it is now going to expand the business, capitalising on Prime Minister Narendra Modi’s push for affordable housing.

Since loan book growth for the housing finance sector is expected to expand at a compounded annual 18-20 per cent in the coming five years, Mahindra and Mahindra Group plans to list its affordable housing unit, Mahindra Rural Housing Finance (MRHF), on the stock exchanges by 2020.

These examples show if the country’s real estate sector is to completely shrug off of the slowdown hovering over it, a lot depends on the progress of government’s housing-for-all mission.