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BW Businessworld

LIC Housing Finance: No Castles In The Air

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When you think of financing home ownership, the first name that comes to mind is Housing Development Finance Corporation (HDFC). Over the past 5-7 years, the housing (and housing finance) boom has pushed a number of other players into prominence, too, like public sector banks, and LIC Housing Finance (LICHF), a subsidiary of Life Insurance Corporation (LIC).

V. K. Sharma, CEO, LIC Housing Finance
(BW Pic By Umesh Goswami)

To begin with, LICHF has been steadily gaining market share in mortgage financing, from roughly less than 6 per cent in 2007 to over 9 per cent in FY12. It is safe to assume that parent LIC's distribution muscle has played no small role in the growth. Its mortgage loan growth has been over 20 per cent, more than twice the industry's overall, which began declining from a shade under 20 per cent in FY07 to about 10 per cent in FY09, and around 13 per cent in FY10. But in an economic slowdown, concerns about credit quality abound, especially in the mortgage market, and LICHF is no exception to this.

But while regulatory provisioning rules have changed the cost equations and made them a little more uncertain, margins have also steadily improved, as has return on assets; LICHF's asset quality has been quite stable. On many operating parameters, such as the aforesaid asset quality, cost structure, size and even adjusted return on equity, the company has caught up with HDFC. But there is a ‘valuation gap': in other words, LICHF continues to trade at a discount to HDFC. The next three years could change that.

(This story was published in Businessworld Issue Dated 28-05-2012)