Aditya Birla Housing Finance Surges Amidst Economic Uncertainty
Amidst economic uncertainty and market volatility, Aditya Birla Housing Finance has made significant strides, doubling its loan book from Rs 13,000 crore to Rs 26,700 crore over the past two years. This impressive growth has been fueled by a strategic focus on credit quality, with approximately 93-94% of the company’s new disbursements going to borrowers with credit scores above 700.
In a recent interview with Teena Jain Kaushal, the Managing Director and CEO of Aditya Birla Housing Finance, Pankaj Gadgil shed light on the market conditions following the Reserve Bank of India’s (RBI) recent rate cut and the company’s future outlook.
When Will Banks Lower Rates?
When discussing the timeline for passing on the benefits of a repo rate cut to borrowers, Gadgil explained the complex nature of determining borrowing costs for housing finance companies. Factors such as borrowing costs from banks, operational expenses, and credit costs all play a role in determining the final rate offered to customers.
Gadgil emphasized that while the company continuously evaluates opportunities to pass on benefits to customers, the process is intricate. Operational efficiencies may allow for some reduction in rates even if the cost of borrowing remains constant. However, any increase in credit costs could offset these savings.
Currently, Aditya Birla Housing Finance’s borrowings are sourced from various channels, including term loans, NCDs, the National Housing Bank, and the short-term money market. To benefit from a repo rate cut, banks must first lower their rates, as lending rates are linked to different tenures, resulting in a delayed transmission of rate cuts.
In response to the question of when banks will lower their rates, Gadgil emphasized that the rate cut is entirely dependent on the decisions made by banks, underscoring their crucial role in rate transmission.
Choosing the Right Loan Option
When discussing the various loan options available to customers, Gadgil highlighted the importance of understanding the differences between fixed-rate and floating-rate loans. While some customers may prefer the stability of fixed-rate loans, floating rates tend to be more adaptable to market conditions.
He also stressed the significance of considering factors such as reference rates, margins over the benchmark, hidden fees, and prepayment flexibility when deciding on a loan option. With the regulator mandating transparency in disclosing reference rates, customers now have the information needed to make informed choices.
Moreover, Gadgil pointed out that while housing finance companies like Aditya Birla do not have the same mandate as banks to link rates to external benchmarks, they prioritize maintaining competitive rates based on internal factors such as borrowing costs and operational expenses.
Current Demand and Future Prospects
Despite the challenges posed by high interest rates, the housing sector has demonstrated resilience and consistent growth over the past five years. Factors such as the low housing loan-to-GDP ratio, urbanization trends, changing family structures, and evolving consumer preferences have all contributed to sustaining demand in the housing market.
Gadgil highlighted the potential for growth in the housing sector, citing the significant housing shortage in India and the shifting preferences towards larger homes in the post-pandemic era. With rising disposable incomes and controlled property price increases, homeownership remains an attractive option for many.
While lower interest rates could serve as a catalyst for further growth, Gadgil emphasized that the underlying fundamentals of the housing sector, including urbanization trends and changing family structures, ensure a bright future for the industry.
In conclusion, as Aditya Birla Housing Finance navigates the challenges of maintaining a high-quality loan portfolio, securing stable funding, and upholding brand trust, the company remains committed to transparency, reliability, and customer satisfaction in all its operations.
