Housing Finance Companies

LIC Housing Finance Limited

Submitted to:
Prof. N R Bhusnurmath
Adjunct Professor

Submitted by:
APO Group-2

Aryan Setu (220601007)

Ayushi Srivastava (220601009)

Himanshu Sahu (220601019)

Risheeka Shah (220601039)

Tushar Bhagwati Prasad Agrawal (220601051)

Institute of Management Technology, Ghaziabad

What is Housing Finance Company (HFC)?

HFC is a company registered under the Companies Act, 2013 which fulfils the given conditions:

• Financial Assets in the business of providing finance for housing should constitute at least
60% of its total assets.

• Out of Total Assets, at least 50% of them should be by way of housing finance.

Products:

• Loan for Purchase of Land

• Loan for Constructing a House

• Loan for Purchasing a House

• Loan for Extending a property

• Loan for Improvement of a property

• Loan against a property

The Need for Housing Finance

The main objective of customers is to ensure the availability of sufficient financing for Housing
Infrastructure and development. They choose HFCs over Banks as the process is easy with less
paper-work and easy approval even with less credit score.

Financial Resources
₹ in Crore
As on As on Change
Financial Resources 31-03-2021 31-03-2022 (%)

Cash and Cash Equivalents 1346.72 937.39 -30.39%

Derivative Financial Instrument 5.69 79.17 1291.39%
Loans 228114.27 245296.33 7.53%
Investments 4635.61 6198.6 33.72%
Other Financial Assets 105.87 16.57 -84.35%
Total 234208.16 252528.06 7.82%
Source: Standalone Annual Report of LICHFL
From the above table, we can see that the loans have increased gradually at 7.53% YoY, with a
similar rise in total financial resources.

Costs and Revenues ₹ in Crore

Year Ended Year Ended

Particulars 31-03-2021 31-03-2022 Change (%)

Revenues
Interest Income 19697.11 19688.46 -0.04%
Fees and Commission 78.82 98.17 24.55%
Gain on De-Recognition of Financial
Instruments 9.45 19.4 105.29%
Other Revenues 62.31 141.79 127.56%
Total 19847.69 19947.82 0.50%

Costs
Financial Cost 14452.58 14153.65 -2.07%
Fees and Commission 109.15 135.54 24.18%
Loss on De-Recognition of Financial
Instruments 27.42 33.59 22.50%
Impairment of Financial Instruments 1317.61 1988.24 50.90%
Employee Benefit Expenses 293.18 563.32 92.14%
Depreciation and Amortisation 49.44 52.44 6.07%
Other Expenses 249.74 248.09 -0.66%
Total 16499.12 17174.87 4.10%

Net Profit 3348.57 2772.95 -17.19%

Source: Standalone Annual Report of LICHFL

Risks – Which could affect the profits and the stability of the bank

Major risks which affect all HFCs are:

1. Liquidity Risk: This risk arises when there is situation of shortage of funds or if they are
available at higher rate of interest.
2. Interest Rate Risk: As most of the financial institutions invest their money in bonds, a
change in monetary policy will lead to fluctuations in them. So, investing in high coupon
bonds will reduce this risk.
3. FOREX Risk: This refers to the change in value of the firm due to unexpected change in
exchange rates. This risk can be managed by hedging in foreign currency futures and
derivatives.
4. Credit Risk: This risk when borrower fails to pay the debt and this leads in losing principal
and interest and affects cash flow.
 5. Operational Risk: The risk of change in value caused by inadequate or failed internal
process, people and system and external events (including legal risk).

Non-Financial Resources ₹ in Crore

As on 31-03- As on 31-03- Change

Non-Financial Resources 2021 2022 (%)

Current Tax Assets 135.17

Deferred Tax Assets 912.93 1368.08 49.86%
Property, Plant and Equipment 130.32 135.74 4.16%
Other Non-Financial Assets 381.91 400.41 4.84%
Total 1425.16 2039.4 43.10%
Source: Standalone Annual Report of LICHFL

Competition

Housing Loans
600000

500000

400000
₹ in Crore

300000

200000

100000

0
HDFC LICHFL Indiabulls PNBHFL Can Fin Homes
Axis Title

Loans

Source: Standalone Annual Statement of each HFCs

Top Housing Finance Companies in India are:

 HDFC
 LIC Housing Finance
 India bulls Housing Finance
 PNB Housing Finance
 Can Fin Homes
  IIFL Housing Finance
 Shriram Housing Finance

But from the above chart it can be seen that LICHFL lies at 2nd position in the market and others are too far
from it. So main competitor for the firm is only HDFC.

Challenges:

1. There are regulations on sector which keeps an eye on the business, some of those are:
 Cannot lent against their own Shares.
 Dividend Pay-out Ratio should not be more than 50%.
 Not allowed to accept Public Deposits unless, had obtained minimum investment
grade rating for deposits from any one of the approved credit rating agencies.
 If accepts Public Deposits, should be repayable within 12 and 120 months.
 Cannot grant loans against public deposits and or make premature payment of
deposits.
 Minimum Net Owned Fund of 20 crores.
2. Government Policies for the Sector: Government of India is offering a number of housing
schemes but due to poor administration, most of the schemes never attain their ultimate
objectives and remain only at primary level.
3. Role of Regulatory Authority: The regulator puts several constraints which affects the growth
of a company. They put regular checks and balances which makes unplanned and improper
growth difficult.
4. Distribution of National Capital among Population: The distribution of national capital affects
the housing finance business directly, if it is distributed rationally, most of the population
could dream for their own house and the chances of growth of sector will be higher.
5. Non-Availability of Funds: Housing financing needs availability of major funds as a long-term
investment. Non-availability of long-term investment is the major problem in housing
finance sector.
6. Static Culture of the Society: Among Indian society, the debt is considered as an evil and this
concept of financing is not appreciated by masses. This type of thinking discourages the
individual to avail the facility of financing which ultimately affects the Housing Finance
Sector.