The Economic Times has reported that Housing Development and Finance Corporation (HDFC) will be launching its car loan and consumer durable loan products. The car loan product will have a total cost of 16.5 - 17% for the customer while the consumer durable product will be offered at a cost that is lower than current rates. The company is expecting to build up a auto and consumer durable loan book of Rs 2.5 bn by the end of this year.
HDFC (FY99 Total Income Rs 17.5 bn) is the largest housing finance company in India with a 55% market share. HDFC operates 41 offices and has a field force of more than 42,000 commission agents who mobilize retail deposits.
The decision to enter the auto and consumer durable loan product business will act as a hedge against any future downturn in the housing loans business. Moreover, the company will have an advantage as it already has a customer base to which it provided housing loans. These same customers can be targeted for the new products without much additional cost being incurred. As the company has already appraised its customers, it will not need to do so again, resulting in cost and time savings. Moreover the house, for which the loan was provided, could be used as collateral.
HDFC has an advantage over other such service providers in terms of resource mobilization and the cost at which it can offer the product. The competitive advantages exist mainly due to the company's high productivity and untarnished asset portfolio.
The competition in car and auto finance is already intense. HDFC's entry will further intensify competition thus making it difficult to earn good margins. Though HDFC has a captive customer base, it will find it very hard to compete with banks, which have the advantages of a larger reach and lower cost of funds.
The stock has always been a favorite of analysts and fund managers as it has an excellent asset quality and a good management. The FIIs have already exhausted their 30% investment limit in the company.
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