Mortgage lender Housing Development Finance Corporation Ltd (HDFC), loved by global investors for its steady profit growth, faces an intensifying battle for business and market share as banks aggressively push home loans.
With India's economic flu hitting corporate lending, banks have cranked up efforts to tap into the country's housing loan demand, which has proven to be brick-hard by comparison.
Demand for homes, and loans, has been stoked by a persisting housing shortage as long-term demographic changes - urbanisation, rising incomes, more nuclear families - transform how and where people live in Asia's third-biggest economy.
With their eyes on the prize, banks such as state-run Bank of India (BOI) and ICICI Bank, the biggest private sector lender, are swarming the market with discounts and special offers, willing to even live with narrower margins. They are also expanding into lower-tier cities, a market that HDFC is nurturing.
"This is a very safe business. All our branches are working hard to grow home loans. We want to grow faster than the industry," said Anil Verma, BOI's chief financial officer.
BOI is setting up branches that only sell auto and home loans, taking five days to process a mortgage. It often takes between two weeks and a month to get a home loan approved in India.
State Bank of India (SBI), which dethroned HDFC as India's top mortgage lender about two years ago, was charging mortgage interest of up to 200 basis points above its base rate in 2011. SBI is now offering home loans at just 10-30 bps above the base rate, underscoring the intensifying competition.
SBI's home loans grew 20 percent in the September quarter from 13 percent a year earlier. ICICI doubled its mortgage growth to 23 percent, while HDFC was flat at 23 percent, according to a report by Ambit Capital this month.
But the battle for mortgage borrowers is threatening to squeeze net interest margins (NIMs). Analysts expect a 10-20 basis point margin decline for banks in the year ending March 2014 from an average of 3.1 percent in 2010/11.
Brokerage Jefferies expects HDFC's NIM to ease to 4.14 percent from 4.4 percent over the same period.
So far, HDFC's overall profitability has remained unscathed, thanks to demand for homes in smaller cities as well as income from other businesses.
For the December quarter, net profit may have risen about 12 percent from a year earlier to 12.8 billion rupees,