Mumbai, Sep 14 (PTI) Housing finance companies (HFCs) will cede market share to banks in 2022-23 despite expectations of a faster growth in assets under management, a report said on Wednesday.

The HFCs' AUM growth will come at 10-12 per cent in FY23 as against 8 per cent in FY22, the report by rating agency Crisil stated.

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The agency, however, said that the faster growth in AUM will not be sufficient to hold on to market share when compared to banks' aggressive play, it said.

The HFC segment had been consistently ceding market share to the banks over the last four fiscal years, and the banks held a 62 per cent share, up by 4 percentage points, as of March 2022, as per Crisil.

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This trend of banks gaining market shares is unlikely to reverse in the near term, the agency said, adding that the merger of the largest pure play home financier HDFC with HDFC Bank will only expand the banks' market share.

One segment where HFCs have been growing relatively faster is affordable housing loans, where competition from banks is limited, it said, adding that the segment will see a 18-20 per cent growth in assets in FY23.

However, the ability of HFCs to compete with banks in the traditional salaried-home-loan segment remains a challenge given their relatively higher funding costs, the agency said.

It added that access to funding is not a big challenge for most HFCs, but banks score on competitive borrowing costs courtesy access to low-cost deposit base.

Given the challenges like thin spreads, tightening regulatory conditions and lack of depth in the corporate bond market, HFCs will need to realign their business models, the agency said.

It expects HFCs to increasingly partner with banks, so that both the entities are able to leverage on each other's strengths, and added that already, there are some examples of the same and this will lead to faster growth in AUM though the on-book growth in assets will be lower.

The agency said the core home loans segment for HFCs will grow at 15 per cent in FY23, while the growth in developer financing and loans against property will continue to be muted.

Last fiscal, HFC growth was a story of two halves which included a stunted growth of 2 per cent on an annualised basis in the first half because of the second wave of the pandemic, followed by a 14 per cent growth on an annualised basis in the second half.

The home loan segment, which is nearly three-fourths of the HFC AUMs, grew 11 per cent last fiscal on the back of better affordability, improved income visibility after resumption of economic activity, higher demand in urban areas bolstered by migration of service sector workforce back to base locations, and increased preference for home ownership, the agency said.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)