INDIAN HOUSING FINANCE INDUSTRY

March 2013

4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai 400 022

CREDIT ANALYSIS & RESEARCH LTD.

March 2013

HOUSING FINANCE

Table of Contents
SECTION- I CARE Researchs OUTLOOK
Outlook and Challenges Outlook on the Indian Housing Finance Sector Outlook on the total housing loan (HFCs + Banks) growth Outlook on the Net Interest Margins (NIMs) Outlook on the asset quality (NPA) Outlook on the Capital Adequacy Ratios (CAR) Outlook on Return ratios: ROA/ROE Key Challenges of Indian Housing Finance sector Key emerging trends in Indian Housing Finance sector

SECTION- II INDUSTRY SECTION

Overview of Indian Housing Finance Industry Industry growth and structural drivers HFCs loans outpacing the bank housing loan growth Drivers of housing loan demand Introduction to Indian Housing Finance Industry Evolution of housing finance in India Component of housing finance Funding sources in the sector Housing microfinance in India Major consolidation in housing finance sector Kay challenges faced by Indian housing finance sector Regulations Regulatory Framework Pre-prudential regulation
o o Sources of funds and permissible limits Interest rate ceilings on public deposits SaRFAESI Act, 2002 Duration of recognition of non-performing assets (NPA) Income Tax act, 1961 and Direct Tax Code, 2010 Risk weights on loans based on LTV Pre-payment levy/pre-closure penalty waived off by NHB

Prudential regulation o o o o o

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o o SEBIs mandate for investment in HFCs

HOUSING FINANCE

External commercial borrowing (ECB) guidelines by RBI

Borrowings and Cost of fund Sources of borrowing Borrowing pattern Borrowing Mix: Trend analysis Cost of fund: trend analysis and guidance Securitization and covered bonds Global securitization market: trend analysis Indian market: trend analysis and guidance Impact of RBI final guidelines on securitization Covered bond proposal by National Housing Bank (NHB)
o o o Key features of covered bond Key element of rating framework Important covenants of covered bond

Global covered bond market

Loan portfolio and Net interest margins (NIM) Loan portfolio of HFCs Loan portfolio mix: trend analysis Investments Net interest margins (NIM): trend analysis and guidance Asset quality - NPA Non-performing assets (NPAs): trend analysis and guidance Provision cover ratio (PCR): trend analysis Capital adequacy and return ratios Capital adequacy regulatory norms Capital adequacy levels of HFCs: trend Return ratios performance: ROE/ ROA

SECTION- III COMPANY SECTION

Housing Development Finance Corporation Limited (HDFC) Company overview Business profile and growth strategies Products offered Operational highlights Performance highlights
o o Income statement statistics Key financial ratios

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o
o

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Balance sheet statistics Credit ratings

Dewan Housing Finance Corporation Limited (DHFL) Company overview Business profile and growth strategies Products offered Operational highlights Performance highlights
o o o o Income statement statistics Key financial ratios Balance sheet statistics Credit ratings

LIC Housing Finance Limited (LIC HF) Company overview Business profile and growth strategies Products offered Operational highlights Performance highlights
o o o o Income statement statistics Key financial ratios Balance sheet statistics Credit ratings

SECTION- IV ANNEXURES

Size - wise incremental loan disbursal (FY04-12) Termwise total housing loan disbursal of HFCs (FY08-12) Borrowing Profile of HFCs (FY04-12) Loan Profile of HFCs (FY04-12) Size-wise deposits of HFCs (FY03-12) Interest rate wise deposits of HFCs (FY03-12) Maturity-wise deposits of HFCs (FY03-12) Securitization transactions (FY02-12) Statistics on Outstanding global covered bond market (2003-2011) Statistics on incremental global covered bond market (2003-2011)

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HOUSING FINANCE

List of Graphs and Tables

SECTION- I CARE Researchs OUTLOOK
Outlook and Challenges Indian housing finance (HFCs + banks) industry loan growth (FY08-15E) HFCs industry loan growth (FY08-15E) Annual Net Interest Margin (NIM) of top 3 HFCs (FY08-12) Quarterly movement Net Interest Margin (NIM) of top 3 HFCs (1QFY10-3QFY13) NPA level of HFCs (FY04-FY12) Quarterly movement of non-performing assets (NPA) of HFCs (1QFY10-3QFY13) Capital adequacy levels of HFCs (FY04-12) Graphical representation of mortgage guarantee product by IMGC

SECTION- II INDUSTRY SECTION

Overview of Indian Housing Finance Industry Total outstanding housing loan (FY05-13e) Housing affordability index (FY02-12) Per capita income levels (CY00-CY17e) % of population in earning bracket (FY11) Comparison between housing loan growth rate of HFCs and banks (FY03-FY13e) Share of HFCs and banks in total housing loan industry (FY03-FY13e) Table on breakup of total housing loan among HFCs and Banks (FY04-13e) Housing loan as a %age of GDP at current prices (FY06-12) Mortgage to GDP ratio global comparison (FY10) Housing Price Index Property prices in Metros and Tier I cities (1QFY08-3QFY13) Housing Price Index graphical representation (1QFY08-3QFY13) Introduction to Indian Housing Finance Industry Evolution of housing finance industry Five-year plan-wise Graphical representation of evolution of housing finance industry Timeline Housing Finance (1970-2012) Housing finance growth over the years (FY05-13e) Graphical representation of housing Finance reverse mortgage loan Graphical representation of types of institutions for funding Sources of HFCs and banks to raise funds Consolidation in housing finance industry Regulations Table of maximum borrowings permissible

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Interest rate on public deposits ceiling Guidelines by NHB for accepting public deposits Table on provisioning norms for HFCs Table on focus areas of SaRFAESI Act Table on benefits of SaRFAESI Act to HFCs

HOUSING FINANCE

Table of maximum interest rate payable on public deposits

Table on maximum amount deductible as interest and principal Loan Bucket & LTV wise risk weights as directed by several guidelines Capital Adequacy Norm stricter regulation already in-place

Borrowings and Cost of fund Table on typical sources of borrowing for HFCs Borrowing trend analysis (FY04-12) Deposit growth and borrowing growth of HFCs industry (FY04-12) Borrowing mix of HFCs (FY04-12) Amount-wise public deposit mix (FY04-12) Interest-rate wise break-up of public deposit of HFCs (FY04-12) Maturity profile wise break-up of public deposits of HFCs (FY04-12) Borrowing profile of leading industry players (FY12) Cost of fund of leading industry players (FY08-12) Benchmark/repo rate movement (FY08-12) Table on Borrowing cost analysis FY13e Securitization and covered bonds Securitization transaction in European Union (EU) (CY01-11) Collateral-wise securitization transaction in EU (CY01-11) Securitization transaction in United States (US) (CY01-11) Collateral-wise securitization transaction in US (CY01-11) Securitization transaction in India (FY02-12) Collateral-wise securitization transaction in India(FY02-12) Table on covered bond mechanism Number of issuers of covered bond (CY03-11) Outstanding covered bond market (CY03-11) Placement-wise outstanding covered bond market (CY03-11) Coupon-wise outstanding covered bond market (CY03-11) Sector-wise outstanding covered bond market (CY03-11) Incremental issuances in covered bond market (CY03-11) Placement-wise incremental issuances in covered bond market (CY03-11) Coupon-wise incremental issuances in covered bond market (CY03-11) Sector-wise incremental issuances in covered bond market (CY03-11)

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Country-wise outstanding issuance of covered bond in 2011 Country-wise incremental issuance of covered bond in 2011

Loan portfolio and Net interest margins (NIM) Housing loan growth: trend analysis (FY04-12) Housing and non-housing loan portfolio (FY04-12) Loan Portfolio mix: housing and non-housing loans (FY04-12) Sizewise loan bracket (FY04-12) Tenurewise loan bracket (FY04-12) Investments growth (FY04-12) Net Interest Margins trend (FY04-12) Quarterly Net Interest Margins trend (FY04-12) Repo rate and HDFC loan yield co-relation (FY04-12) Table on loans/advances return analysis for FY13e Asset quality - NPA Non-performing assets trend (FY04-9MFY13) Quarterly Non-performing assets trend (1QFY10-3QFY13) Provision coverage ratio trend (FY04-12) Credit cost ratio trend (FY04-12) Table on asset quality and provision cover of few HFCs Capital adequacy and return ratios Capital to risk - weighted assets regulatory requirement (2001-12) Capital adequacy levels of leading HFCs Table on CAR, Tier I&II ratios of few industry players

SECTION- III COMPANY SECTION

Housing Development Finance Corporation Limited (HDFC) Share holding pattern as on December 2012 Loan book growth (FY07-12) Operational highlights (FY03-12) Income statement statistics (FY07-9MFY13) Key financial ratios (FY07-9MFY13) Credit rating as on March 2013 Dewan Housing Finance Corporation Limited (DHFL) Share holding pattern as on December 2012 Loan book growth (FY07-12) Chart on business profile Operational highlights (FY03-9MFY13) Income statement statistics (FY07-9MFY13)

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Key financial ratios (FY07-9MFY13) Credit rating as on March 2013

HOUSING FINANCE

LIC Housing Finance Limited (LIC HF) Share holding pattern as on December 2012 Loan book growth (FY07-12) Income statement statistics (FY07-9MFY13) Key financial ratios (FY07-9MFY13) Credit rating as on March 2013

SECTION- IV ANNEXURES

Size - wise incremental loan disbursal (FY04-12) Termwise total housing loan disbursal of HFCs (FY08-12) Borrowing Profile of HFCs (FY04-12) Loan Profile of HFCs (FY04-12) Size-wise deposits of HFCs (FY03-12) Interest rate wise deposits of HFCs (FY03-12) Maturity-wise deposits of HFCs (FY03-12) Securitization transactions (FY02-12) Statistics on Outstanding global covered bond market (2003-2011) Statistics on incremental global covered bond market (2003-2011)

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HOUSING FINANCE

The report elucidates facts on the Indian Housing Finance Industry, supplemented by the latest available statistics. The report is divided into four sections. Section I covers CARE Researchs outlook on the industry over next three years and challenges. Section II covers overview of demographic analysis and performance analysis of the industry with focus on loan growth, borrowing growth, profitability, asset quality and new regulations impacts. It provides extensive coverage on the loan growth, borrowing growth, profitability and key growth drivers. Section III covers operating and financial performance analysis of 3 major Indian housing finance players. Section IV provides coverage on critical data and information pertaining to the industry including company-wise. Following are the points which are emphasised to accomplish the report: Section I Housing Loan growth projection for the next three years along with detailed analysis of each growth driver Outlook on changing share of banks and HFCs (housing finance companies) in total housing loan market CARE Researchs perspective of the industry margins for the next two years CARE Researchs perspective of the industry asset quality for the next two years Key challenges faced by the industry Section II Information on the loan growth of HFCs Information on the loan growth of banks Evaluation of housing finance industry along with latest regulation and CARE Researchs opinion Extensive analysis of changing borrowing/loan profile of HFCs industry Detailed analysis of domestic and global securitization and covered bond market Section III Brief on leading Indian housing finance companies Section IV Annexures For an in-depth analysis and CAREs view on the future of this sector, please refer to the exhaustive report on Indian Housing Finance Industry, March 2013 by CARE Research. The subscription to this report includes 4 quarterly updates on the industry, from Q1FY14 to Q4FY14.

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HOUSING FINANCE

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March 2013 Contact:Revati Kasture Head Industry Research (D): +91-22-6754 3465

HOUSING FINANCE

[email protected]

Divyesh Shah AGM (D): +91-22-6754 3441 Mukund Upadhyay Research Analyst (D): +91-22-6754 3452

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4th Floor Godrej Coliseum, Off Eastern Express Highway, Somaiya Hospital Road, Sion East, Mumbai 400 022 Tel: +91-22-6754 3456 Fax: +91-22-6754 3457

CREDIT ANALYSIS & RESEARCH LTD.

DISCLAIMER This report is prepared by CARE Research, a division of Credit Analysis & REsearch Limited [CARE]. CARE Research has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Research operates independently of ratings division and this report does not contain any confidential information obtained by ratings division, which they may have obtained in the regular course of operations. The opinion expressed in this report cannot be compared to the rating assigned to the company within this industry by the ratings division. The opinion expressed is also not a recommendation to buy, sell or hold an instrument. CARE Research is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE (including all divisions) has no financial liability whatsoever to the user of this product. This report is for the information of the intended recipients only and no part of this report may be published or reproduced in any form or manner without prior written permission of CARE Research.

Published by Credit Analysis & REsearch Ltd. 4th Floor Godrej Coliseum, Off Eastern Express Highway, Somaiya Hospital Road, Sion East, Mumbai 400 022 Tel: +91- 22-6754 3456 Fax: +91-22-6754 3457

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March 2013
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HOUSING FINANCE
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