hdfc merger: home loan market will double, hdfc merger will help scale up business: chairman deepak parekh

India will be able to double its home loans to around $600 billion within the next five years as the aspiration to own a home will only increase and the merger with HDFC Bank will help Housing Development Finance Corp Ltd (HDFC) to scale up its business, chairman Deepak Parekh said in his annual address to shareholders.

“At HDFC, we know that this is the right time for strategic choices as we prioritize pathways for future growth. Our moment of truth is that the optimum path to scale up housing finance is to be housed within a banking structure. The pool of resources for lending will be significantly larger and at lower costs. From a regulatory perspective, it is prudent for all large providers of housing finance to operate on a level playing field, with the same rules. Globally too, the scale of mortgage assets is exponentially larger in banks compared to non-banking financial entities,” Parekh said explaining the rationale for the merger with its banking subsidiary which was announced in early April.

Parekh said that the home loan market in India is estimated at slightly over $300 billion, at a mortgage to GDP ratio of just 11% currently, but favorable conditions like rising income levels, improved affordability and fiscal support augur well for the demand for homes.

“Real estate in India is on an upcycle. Developers are now financially stronger and more disciplined,” he said adding that despite the likely doubling of housing loans, India’s mortgage penetration would still remain low at an estimated 13% of GDP.

“Now is the time to ask ourselves what will it take for India’s mortgage to GDP ratio to cross 20% and beyond? When one looks at comparable Asian economies, the average mortgage to GDP ratios range between 20 to 30%. This implies that housing loans in India will have an exponential growth trajectory for decades to come,” he said.

Parekh said that

is confident that the outcome from regulators “will be judicious and fair at a systemic level.”

He asked the company’s stakeholders to be patient. “My only ask of our stakeholders is for your patience as we navigate through the complexities of this transaction. More than ever before, we need your trust and support,” Parekh said.

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