Housing Finance Disbursements to De-grow 7% in 2009-10

Contents
Sections
Executive summary 1
Review 3
Outlook 6
Impact analysis of the upcoming supply of housing units on the
‘loan slab-wise distribution of disbursements’ 11
Net profit margin (NPM) on incremental disbursements to face pressure
in 2009-10 19
Asset quality 20
Charts
Methodology for arriving at the loan slab-wise distribution of home loans
upto 2008-09 11
Figures
Housing finance disbursements- upto 2008-09 3
Significant rise in the proportion of balance transfer cases 4
Distribution of volumes - new loans and balance transfers- upto 2008-09 5
Sharp increase in ATS for PSU banks in 2008-09 due to increase in
balance transfer cases 5
Housing finance disbursements- upto 2010-11 6
Loan to value ratio 7
Significant rise in the proportion of balance transfer cases 7
Distribution of volumes - new loans and balance transfers- upto 2009-10 8
Mumbai affordability (property price to income ratio) 9
Player group-wise share in housing loan disbursement 10
Loan slab-wise distribution of home loans- upto 2008-09 12
Estimated loan slab-wise distribution of disbursements for 2008-09 – 12
Player group wise and Industry 12
Estimated loan slab-wise distribution across region for 2008-09 13
Estimated ATS across regions for 2008-09 14
Loan slab-wise distribution of home loans 15
Planned supply of housing units - Across 10 major cities for 2009-11 16
Planned supply of housing (in value terms)- Across 10 major cities for
2009-11 16
Big Cities - (Proportion 54% in FY09, 53% in FY11) 16
Rest of Urban - (Proportion 34% in FY09, 34% in FY11) 17
Rural - (Proportion 12% in FY09, 13% in FY11) 17
Estimated ATS across regions for 2008-09 and 2010-11 18
Gross NPA ratio as on March 31 20
Tables
Profitability structure of banks vis-à-vis HFCs for 2009-10 19
Highlights
Continuing uncertainty over income
level growth and estimated reduction
in average ticket size would lead
disbursements to de-grow by 7 per
cent in 2009-10 over 2008-09.
Share of balance transfer cases
estimated to have risen significantly in
2008-09. We expect the same to
increase further to 17-19 per cent in
2009-10.
In light of upcoming supply across 10
major cities, share of disbursements is
estimated to increase in loan slab
above Rs 3 million to 27 per cent in
2010-11 from 25 per cent in 2008-09.
With the launch of competitive
schemes by Public Sector
Undertakings banks, margins are
expected to face pressure.
Share of higher loan slabs to increase in 2010-11 over 2008-09
Retail finance - Housing
This document has been prepared by Chirag Jain, Preeti S Manerkar and Manoj Mohta (Head
of Research). For any queries, please get in touch with our client servicing desk.
(clientservicing@crisil.com; Phone: 022-66913561)
July 2009

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CRISIL RESEARCH RETAIL FINANCE - HOUSING UPDATE: JULY 2009, 20 PAGES 1
Executive summary
Housing finance disbursements are estimated to have de-grown by 1 per cent in 2008-09 over 2007-08. While
high interest rates slowed down growth in the first half, factors such as expected property price decline and
uncertainty over growth in income levels remained dominant factors affecting performance in the second half of
2008-09.
Disbursements are estimated to de-grow further by 7 per cent in 2009-10 due to reduction in
average ticket size (ATS) and subdued volumes
With the fall in property prices of around 20-25 per cent in 2008-09 from their peak levels coupled with
expectation of further decline of around 8-10 per cent, the ATS is estimated to de-grow in 2009-10. Continuing
uncertainty over income level growth, stringent under-writing norms together with deferment of purchases, would
negatively impact the demand for housing in 2009-10. Against this backdrop, CRISIL Research estimates the
housing finance disbursements to de-grow by 7 per cent in 2009-10 over 2008-09.
Although with the fall in property prices, the affordability is expected to improve in 2009-10, CRISIL Research
estimates disbursements to register a positive growth only with a lag effect from 2010-11.
Balance transfer cases estimated to have increased significantly in 2008-09
With reduction in interest rates and differential between player groups, there has been a significant rise in the
proportion of balance transfer cases at around 10-12 per cent in 2008-09 over 5-7 per cent in 2007-08. The Public
Sector Undertaking (PSU) banks have been the main beneficiaries due to their competitive interest rates. As a
result, the PSU banks have gained significant market share (by an estimated 13-15 per cent in 2008-09). CRISIL
Research expects the share of balance transfer cases to increase further in 2009-10, as existing borrowers try to
take benefit of interest rates re-pricing.
The launch of competitive home loan schemes would result in decline in effective yields (both for existing and
new borrowers). Thus, CRISIL Research estimates the net profitability margins (NPM) of financiers to face
pressure.
Gross NPA for home loan portfolio is estimated to have increased to 2.7 per cent as on March 2009 and expected
to reach to around 3 per cent as on March 2010 within the banking sector. However, CRISIL Research believes
that factors such as recourse to the Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interests (SARFAESI) Act in foreclosing loans and under-declaration of market value of properties, will
limit the ultimate credit losses for the financiers.

2 CRISIL RESEARCH RETAIL FINANCE - HOUSING UPDATE: JULY 2009, 20 PAGES
Share of higher loan slab brackets to increase in 2010-11 over 2008-09
In the light of the expected supply of housing units in 101
major cities across various property price buckets over
the next 2-3 years and the assessment from our proprietary long term housing finance model, CRISIL Research
estimates the share of higher loan slab brackets to increase in 2010-11 over 2008-09. While, loan slabs below Rs 3
million are estimated to shrink in proportion, the share of loans above Rs 3 million are estimated to grow in 2010-
11 to reach around 27 per cent of the overall disbursements.
1
Mumbai, NCR, Bengaluru, Kolkata, Chennai, Ahmedabad, Hyderabad, Chandigarh, Kochi and Pune – This cities
contributes to around 55-60 per cent of the overall housing finance disbursements

Review
Interest rate movements, income levels and movement in property prices play a crucial role in shaping the growth
of housing finance industry. Disbursements in the housing finance industry, which grew at a robust 43 per cent
CAGR from 2000-01 to 2004-05, dropped to around 16 per cent from 2004-05 till 2007-08. This initial growth
was driven by the combined effect of a booming economy leading to higher income levels, low interest rates and
marginal increase in property prices. During 2004-05 and 2007-08, housing prices and interest rates moved up.
However, as the increase in income levels failed to draw level, growth slowed down.
Figure 1: Housing finance disbursements- upto 2008-09
865
1,100
1,185 1,171
12%
27%
-1%
8%
-
400
800
1,200
1,600
2005-06 2006-07 2007-08E 2008-09E
-10%
0%
10%
20%
30%
Disbursements Growth rate (RHS)
(Rs in billion)
E: Estimated
Source: CRISIL Research
High interest rates and property prices were the key reasons for the decline in demand for housing in 2008-09.
CRISIL Research estimates housing finance disbursements to have de-grown by 1 per cent in 2008-09 over 2007-
08 due to the following reasons:
• Moderate growth in Average Ticket Size (ATS) with decelerating property prices
− Housing prices in major residential markets peaked in the last quarter of 2007-08 and remained stable till
mid-2008-09, after which they started correcting. CRISIL Research estimates the property prices to have
fallen by around 20-25 per cent from their peak levels. Despite of fall in property prices in the second half
of 2008-09, the average property prices were higher (though marginal) compared to 2007-08.
− The supply of housing units indicates an increase in the average area size per housing units in 2008-09
compared to 2007-08. Thus, the higher average property prices and larger average area of homes led to an
increase in the value of homes financed in 2008-09, though the rate of growth was lower compared to
2007-08.
− The industry has witnessed an increase in the share of balance transfer cases with higher ATS (discussed
subsequently in this section) in 2008-09, the proportion still remains at around 10-12 per cent of the
overall disbursements.
− However, with the anticipation of fall in property prices and uncertainty over growth in income levels,
financiers have adopted stringent credit norms and reduced the average Loan-to-Value (LTV) ratio to 74

per cent in 2008-09 compared to 75 per cent in 2007-08.
• Reduction in volumes due to high interest rates and property prices in 2008-09
− Volume transactions in the underlying property market had come down substantially in the third quarter
of 2008-09 with customers postponing demand in anticipation of further decline in property prices and
interest rates. On the financier side, higher rejection rate due to stringent credit norms and underwriting
standards also impacted the volume transactions.
− Delaying of buying of homes together with stringent underwriting norms led to an overall de-growth in
volumes estimated at around 4-5 per cent in 2008-09 over 2007-08.
CRISIL Research estimates significant increase in the share of balance transfer cases in
2008-09
With reduction in interest rates and differential between player groups for their respective existing home loan
borrowers, number of borrowers switching their loans (borrowing from another and paying the existing lender –
also known as balance transfer), has increased significantly in 2008-09 over 2007-08.
The main beneficiary of this phenomenon has been the Public Sector Undertaking (PSU) banks, who have been
able to attract a huge chunk of the balance transfer cases from other players (mainly some of the large private
Indian banks/ foreign banks). This has been due to their competitive interest rates (enabled by lower cost of funds
and renewed focus on housing finance segment).
Based on industry interactions and our analysis, CRISIL Research estimates the proportion of balance transfer
loans in the overall disbursements to have reached 10-12 per cent in 2008-09, compared to 5-7 per cent in 2007-
08.
Figure 2: Significant rise in the proportion of balance transfer cases
94%
89%
6% 11%
0%
20%
40%
60%
80%
100%
2007-08E 2008-09E
New loans Balance transfers
E: Estimated

Figure 3: Distribution of volumes - new loans and balance transfers- upto 2008-09
96.9% 95.3%
3.1% 4.7%
0%
20%
40%
60%
80%
100%
2007-08E 2008-09E
E: Estimated
Increase in proportion of balance transfer loans results in sharp increase in ATS for PSU
banks in 2008-09
Borrowers mainly from foreign banks and private Indian banks have shifted their loans to other players within the
industry. As the ATS of these players are typically higher compared to the industry average, ATS for the balance
transfer cases have also been of higher order (in the range of Rs 1.5-2 million).
As most of the balance transfer cases have shifted to PSU banks because of their competitive pricing of home
loans, they are estimated to have witnessed a sharp rise in the ATS for 2008-09.
Figure 4: Sharp increase in ATS for PSU banks in 2008-09 due to increase in balance transfer cases
1.31
1.44
0.73
1.07
1.46 1.51
0.86
1.13
6%
17%
12%
5%
0
1
2
HFCs Pvt. banks PSU banks Pan India - Industry
0%
4%
8%
12%
16%
20%
2007-08E 2008-09E Growth rate (RHS)
(Rs in million)
E: Estimated

Outlook
Housing finance disbursements estimated to de-grow by 7 per cent in 2009-10 as against 1
per cent in 2008-09
Figure 5: Housing finance disbursements- upto 2010-11
865
1,100
1,185 1,171
1,088
1,164
7%
-7%
8%
-1%
27%
12%
-
400
800
1,200
1,600
2005-06 2006-07 2007-08E 2008-09E 2009-10P 2010-11P
-10%
0%
10%
20%
30%
Disbursements Growth rate (RHS)
(Rs in billion)
E: Estimated, P: Projected
CRISIL Research estimates the housing finance disbursements to de-grow by 7 per cent in 2009-10 (as against a
de-growth of 1 per cent in 2008-09) due to the following reasons:
• Reduction in ATS of around 3-5 per cent in 2009-10 over 2008-09
− Property prices across India are estimated to have declined by around 20-25 per cent by the end of 2008-
09 from their peak. CRISIL Research estimates the property prices to correct by another 8-10 per cent in
2009-10 over 2008-09 year end levels. This would result in the decline in average property prices in
2009-10 over 2008-09.
− With a view to safeguard their portfolio against falling property prices, financiers are expected to remain
cautious in their underwriting process. Accordingly, we estimate the average LTV to fall from 74 per cent
in 2008-09 to around 73 per cent in 2009-10.
− The combined effect of reduction in average property prices and lower LTV in 2009-10 would result in a
de-growth in ATS by around 10-12 per cent in 2009-10 over 2008-09. However, with the expected rise in
the proportion of balance transfer cases estimated at 17-19 per cent, the de-growth in the ATS would be
restricted to only 3-5 per cent in 2009-10 over 2008-09.

• Impact on volumes of around 1-2 per cent in 2009-10 over 2008-09
− We estimate the demand for home loans to stabilize but might still decline by around 1-2 per cent in
2009-10 over 2008-09 due to postponement of buying (with a view of reduction in property prices) and
continuing uncertainty over growth in income levels.
Average LTV estimated to decrease to 73 per cent in 2009-10 as compared to 74 per cent in
2008-09
With the prospect of fall in property prices, CRISIL Research estimates the financiers to remain stringent in their
underwriting process. We expect them to lend at an average LTV ratio of 73 per cent in 2009-10 compared to 74
per cent in 2008-09, in order to safeguard their portfolio against decline in property prices.
Figure 6: Loan to value ratio
73%73%
74%
75%75%
60%
64%
68%
72%
76%
2006-07 E 2007-08 E 2008-09 E 2009-10 P 2010-11 P
Proportion of balance transfer cases estimated to further increase in 2009-10 due to interest
rate differential between player groups
Figure 7: Significant rise in the proportion of balance transfer cases
94%
89%
82%
6%
11%
18%
0%
20%
40%
60%
80%
100%
2007-08E 2008-09E 2009-10P

Figure 8: Distribution of volumes - new loans and balance transfers
96.9% 95.3% 92.9%
3.1% 4.7% 7.1%
0%
20%
40%
60%
80%
100%
2007-08E 2008-09E 2009-10P
As discussed above, with the interest rate reduction and differential between the player groups, the proportion of
balance transfer cases from some of the private Indian banks/ foreign banks to other players had increased
significantly in 2008-09. However, with the launch of competitive schemes in the last quarter of 2008-09 by PSU
banks, CRISIL Research estimates the balance transfer cases to increase further to reach 17-19 per cent of overall
disbursements in 2009-10.
Volumes to de-grow by around 1-2 per cent in 2009-10 over 2008-09 due to continuing
uncertainty over income level growth and expected fall in property prices
Continuing uncertainty over income level growth, tight underwriting standards leading to higher rejection rate by
the financiers together with postponement in purchases (with a view that property prices may correct further)
would affect the demand for housing in 2009-10 over 2008-09 by around 1-2 per cent.
Based on our interactions with players in the industry (both financiers and developers/builders), we understand
that the volumes in the housing finance industry have risen in the April-June 2009 quarter (y-o-y). CRISIL
Research believes that this indicates some signs of revival in demand for housing (customers who were sitting on
the sidelines for a long period of time for property prices to correct). The reduction in interest rates might mitigate
to some extent the negative influence of economic slowdown and the resultant impact of uncertainty in income
growth.
Thus, CRISIL Research estimates only marginal decline in volumes in 2009-10 over 2008-09.
Against this backdrop of declining volumes and de-growth in ATS in 2009-10 over 2008-09, CRISIL Research
estimates the disbursements for the housing finance industry to de-grow by 7 per cent in 2009-10 over 2008-09 to
reach Rs 1,088 billion.

Disbursements to resurge with a lag effect from 2010-11
CRISIL Research estimates that although the affordability of borrowers will improve in 2009-10, disbursements
are expected to register a positive growth with a lag effect from 2010-11. We calculated the affordability ratio
across seven cities and illustrated the ratio of one of the cities below:
Figure 9: Mumbai affordability (property price to income ratio)
0
2
4
6
8
10
12
2001-
02
2002-
03
2003-
04
2004-
05
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
2010-
11
2011-
12
2012-
13
(Affordabilityindex)
0
4
8
12
16
20
24
28
32
36
40
44
(AnnualincomeandPropertycost)Affordability index Average annual income Average property cost
Affordability index to peak
out in 2009-10
E: Estimated, P:Projected
Note: Property costs and annual income are estimates for Mumbai
The property price to income ratio measures the affordability of the buyer for purchasing a house at his current
income level- lower the ratio, higher is the buyer’s affordability. Affordability levels for Mumbai are estimated to
improve as property prices declined by around 24-26 per cent in 2008-09 and by around 8-10 per cent in 2009-10.
Affordability levels are expected to improve despite the decline in growth in income levels. Income levels are
estimated to grow by around 3-5 per cent in 2009-10 and 2010-11 as against the CAGR of 7-10 per cent during
between 2002-03 and 2007-08. Affordability levels deteriorated during 2005-06 to 2007-08 as the growth in
property prices superseded the growth in income levels by larger difference.
At pan-India level, property prices peaked in the last quarter 2007-08 and declined by an estimated 20-25 per cent
in 2008-09. This would improve affordability even though the growth rate in income level is estimated to decline
to 3-5 percent as compared to 7-10 per cent in the last 5 years.
With the expectation of a further decline in property prices, demand may still be postponed in 2009-10.
Thus, with better affordability (compared to the period between 2005-06 and 2008-09) and lower uncertainty over
growth in income level, CRISIL Research estimates the volumes to increase in 2010-11 by around 5-7 per cent
over 2009-10. Therefore, the increase in volumes will lead to a surge in housing finance disbursements in 2010-11
by 7 per cent over 2009-10.

HFCs share in housing finance disbursements to surpass banks in 2009-10
Figure 10: Player group-wise share in housing loan disbursement
34% 32% 36%
44%
50% 52%
66% 68% 64%
56%
50% 48%
0%
20%
40%
60%
80%
100%
2004-05 E 2005-06 E 2006-07 E 2007-08 E 2008-09 E 2009-10P
HFCs Banks
Over the last one year, some of the large private Indian banks have shifted their focus from achieving volumes
growth towards consolidating their existing portfolio in order to reduce the deterioration in asset quality. This has
resulted in decline in market share for the private Indian banks.
Further, due to the economic slowdown, demand for premium housing has dried up significantly. This has
resulted in sharp reduction in the market share for foreign banks, as the premium housing segment had been the
preferred market for them.
On the other hand, PSU banks and HFCs are estimated to have gained market share in 2008-09.
PSU banks, along with their competitive pricing of loans, are estimated to have significantly increased their
market share in 2008-09 (estimated at around 25-30 per cent) over 2007-08.
HFCs have been gaining market share since 2006-07 due to the following reasons:
• Cautious approach along with stringent credit screening adopted before disbursements. A quality credit
portfolio will help them to sustain the growth in future.
• HFCs increased focus in urban areas leading to an increase in the ticket size, resulting in strong growth in
disbursements.
• With the change in business model of some of the private Indian banks, under which they are booking loans
below Rs 2 million under their respective banking arm for priority sector benefits and rest under their
respective HFCs arm, CRISIL Research estimate the market share of HFCs to increase by another 2 per cent
to 52 per cent in 2009-10.

Impact analysis of the upcoming supply of housing units on
the ‘loan slab-wise distribution of disbursements’
In this section we have analysed the changes in the loan slab-wise distribution of housing finance disbursements
over the course of past few years and our estimated distribution for 2010-11. The reason to focus on the changes
in the loan slab-wise distribution was to analyse the impact of the significant rise in the proportion of balance
transfer cases in 2008-09 and the expected supply of housing units in 102
major cities across various property
price buckets over the next 2-3 years.
Chart 1: Methodology for arriving at the loan slab-wise distribution of home loans- upto 2008-
09
- Top 7 cities: Rest of urban: Rural mix
(54:34:12)
- Loan slab-w ise and overall ATS
- Region-w ise ATS i.e. for Top 7 cities, rest of
urban and rural region
- Loan slab-w ise proportion of loans
Disbursement distribution upto 2008-09
Inputs from our proprietary 'long term
housing finance' model
Player group wise data from industry
interactions
- Pan India disbursements
- Disbursements and volumes numbers
Based on our interaction with industry players (which together contribute to more than 65 per cent of the overall
disbursement) and the assessment from our proprietary long term housing finance model, we have analysed the
loan slab-wise distribution of disbursements- player group-wise, region-wise (Top 7 cities, rest of urban and rural
region) and at an industry level.
2
Mumbai, NCR, Bengaluru, Kolkata, Chennai, Ahmedabad, Hyderabad, Chandigarh, Kochi and Pune – This cities
contributes to around 55-60 per cent of the overall housing finance disbursements

Rise in balance transfer cases leads to significant growth in the Rs 1.5-2 million loan
bracket in 2008-09 over 2007-08
Figure 11: Loan slab-wise distribution of home loans- upto 2008-09
34.9%
23.7% 18.9%
7.5%
23.9%
23.8%
21.1%
21.5%
15.7%
19.9%
22.8%
19.2%
12.6%
16.1%
18.4%
27.1%
12.9% 16.4% 18.8%
24.8%
0%
20%
40%
60%
80%
100%
2005-06E 2006-07E 2007-08E 2008-09E
below Rs 0.5 mn Rs 0.5 mn - Rs 1 mn Rs 1 mn - Rs 1.5 mn
Rs 1.5 mn - Rs 3 mn above Rs 3 mn
E: Estimated
• There has been a significant rise in the market share of PSU banks in 2008-09 (estimated at around 25-30 per
cent in 2008-09 as against 12-15 cent in 2007-08). As most of the PSU banks have their ATS at around Rs
0.6-0.8 million, this has led to an increase, though marginal, in the share of Rs 0.5 to Rs 0.1 million loan
bracket as against the general decline witnessed in the other two loan slabs below Rs 1.5 mn.
• Further as mentioned above, there has been a substantial increase in the proportion of balance transfer loans
in 2008-09 over 2007-08. The ATS in balance transfer cases has been high at around Rs 1.5-2 million. This
has resulted in a significant increase in the share of Rs 1.5-3 million loan bracket.
• The loan slab above Rs 3 million has increased in 2008-09 over 2007-08 due to high property price prevailing
in the first half of 2008-09, which led to disbursements growing in the higher ticket size loan brackets.
Figure 12: Estimated loan slab-wise distribution of disbursements for 2008-09 – Player group wise
and Industry
5 5
12 8
16
37
21
22
22
13
19
28
32
23
27
29 33
15
25
8
0%
20%
40%
60%
80%
100%
HFCs Private bank PSU banks Industry
Key focus on
high ticket size
loans,
especially
foreign banks
Focus on
urban region
with high ATS
Rise due to
increase in
share of
balance
transfer
ATS 1.46 mn 1.51 mn 0.86 mn 1.13 mn
Note: Private banks include foreign banks

HFCs and private banks have high ATS due to their ‘urban focused’ approach
HFCs and private banks, particularly foreign banks, are more ‘urban focused’ in their approach and hence have a
higher proportion (around 60 per cent) of their disbursements with ticket-sizes above Rs 1.5 million. Foreign
banks, with limited number of branches (and therefore limited number of loan processing capabilities) generally
concentrate on the upper / premium segments of the market, with high ticket sizes.
PSU banks have a high proportion in Rs 1.5 - 3 million loan bracket due to rise in balance
transfer cases
For most of the PSU banks, the ATS is around Rs 0.6 – 0.8 million, with the largest player having an ATS of Rs
1.2 - 1.4 million. However, with a sharp increase in the proportion of balance transfer related disbursements,
which typically carry high ticket size (as explained above), there has been a huge surge in the share of Rs 1.5 – 3
million loan bracket in the overall disbursements for PSU banks.
Apart from player group wise distribution, in order to have a better understanding of the dynamics of the industry,
we have also analysed the loan slab-wise distribution of disbursements region-wise for 2008-09.
Loan slab-wise distribution of disbursements and ATS deviates on a regional basis
The loan slab-wise distribution of disbursements and the ATS varies from region to region. This variation is due
to the difference in the socio-demographic and economic factors.. These differences emerge from the composition
of population in the various income brackets, the disparity in underlying property prices arising due to varying
rates on a per square feet area and the penetration of finance. Underwriting standards, like LTV, also vary from
region to region, depending on the differences in the black money component prevalent in various regions. The
black money component is basically the difference between the market value and the registered value of the
property. Therefore, the above differences delineate the loan slab-wise distribution of disbursements and ATS of
different regions.
Figure 13: Estimated loan slab-wise distribution across region for 2008-09
3
55
10
37
30
15
29
10
33
25
5
42
6
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Top 7 cities Rest of urban Rural
Below Rs 0.5 mn Rs 0.5 mn - Rs 1 mn Rs 1 mn - Rs 1.5 mn

Figure 14: Estimated ATS across regions for 2008-09
1.97
1.04
0.43
1.13
0.0
0.5
1.0
1.5
2.0
Top 7 cities Rest of Urban Rural Pan India
(Rs in million)
CRISIL Research estimates the Top 7 cities to contribute around 54 per cent of the overall disbursements in the
housing finance industry. Due to high property prices and better income levels, disbursements in the Top 7 cities
are more concentrated in the upper loan brackets, with loans above Rs 1.5 million constituting around 75 per cent
of the disbursements. Accordingly, the ATS for the Top 7 cities estimated by us would be around Rs 1.97 million
due to such large proportion of high ticket loans.
In the rest of the urban region (constituting around 34 per cent of pan Indian disbursements), disbursements under
Rs 1.5 million loan bracket constitute around 70 per cent of their overall disbursements, with an estimated ATS of
Rs 1.04 million in 2008-09. For the rural region, the estimated ATS would be Rs 0.43 million with 55 per cent of
the overall disbursements forming part of the below Rs 0.5 million loan bracket.
Share of higher loan slabs to increase in 2010-11 over 2008-09
CRISIL Research estimates the proportionate share of higher loan slabs within the housing finance disbursements
to increase in 2010-11 over 2008-09. This analysis is based on the findings of CRISIL Research's recent study of
the real estate market scenario in 10 major cities (contributing to around 55-60 per cent of the overall the industry
disbursements), the assessment from our proprietary long term housing finance model and our interactions with
the players (both financiers and developers/builders) in the industry.

Figure 15: Loan slab-wise distribution of home loans
34.9%
23.7% 18.9%
7.5% 7.7%
23.9%
23.8%
21.1%
21.5% 20.7%
15.7%
19.9%
22.8%
19.2% 19.8%
12.6%
16.1%
18.4%
27.1% 25.1%
12.9% 16.4% 18.8%
24.8% 26.8%
0%
20%
40%
60%
80%
100%
2005-06E 2006-07E 2007-08E 2008-09E 2010-11P
• In light of the upcoming supply (as given in figure 16 and 17 below) and interactions with players in the
industry, we estimate a larger proportion of the disbursements to move towards higher loan brackets, with
loans below Rs 1.5 million bracket expected to shrink in proportion compared to 2008-09.
• The proportion of disbursements in the Rs 1.5 - 3 million loan bracket is expected to fall with the proportion
of balance transfer cases going back to the long term average of around 5 - 7 per cent of the overall
disbursements. However, share of disbursements in the former loan bracket would still be higher compared to
the 2007-08 levels, signifying a trend of disbursements moving towards higher loan slabs.
• With the share of HFCs and private/foreign expected to move up in 2010-11 (i.e. decline in the share of PSU
banks), CRISIL Research expects the share of proportion of disbursements above Rs 3 million loan bracket to
move up. This is because of the ‘urban focused’ approach of these players, who generally have high
proportion of their disbursements in the higher ticket size brackets.

Distribution of upcoming supply across 10 major cities – both in volumes and value terms
Figure 16: Planned supply of housing units -
Across 10 major cities for 2009-11
Figure 17: Planned supply of housing (in value
terms)- Across 10 major cities for 2009-11
14.3%
20.0%
12.2%
15.6%
17.1%
20.8%
0%
5%
10%
15%
20%
25%
upto Rs 2
mn
Rs 2 mn -
Rs 3 mn
Rs 3 mn -
Rs 4 mn
Rs 4 mn -
Rs 5 mn
Rs 5 mn -
Rs 7.5 mn
above Rs
7.5 mn
13.3%
15.1%
21.5%
37.3%
9.0%
3.8%
0%
10%
20%
30%
40%
upto Rs 2
mn
Rs 2 mn -
Rs 3 mn
Rs 3 mn -
Rs 4 mn
Rs 4 mn -
Rs 5 mn
Rs 5 mn -
Rs 7.5 mn
above Rs
7.5 mn
Source: CRISIL Research Source: CRISIL Research
We have also analysed the implications of the above changes in the distribution of disbursements on a pan India
level to region-wise distribution (divided into Top 7 cities, rest of urban and rural region).
Figure 18: Big Cities - (Proportion 54% in FY09, 53% in FY11)
10 9
15 15
32.5 29
42 46
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY09 FY11

Figure 19: Rest of Urban - (Proportion 34% in FY09, 34% in FY11)
37
35
29
30.5
25 26
6 7
0%
20%
40%
60%
80%
100%
FY09 FY11
Figure 20: Rural - (Proportion 12% in FY09, 13% in FY11)
55 51
30
31
10
11
5 7
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY09 FY11
Below Rs 0.5 mn Rs 0.5 mn - Rs 1 mn
Rs 1 mn - Rs 1.5 mn above Rs 1.5 mn
As observed in the above graphs, CRISIL Research estimates the share of disbursements to increase in the higher
loan slabs in 2010-11.
Further, based on the assessment from our proprietary long term housing finance model, CRISIL Research
estimates the share of the Top 7 cities in the pan India disbursements to decrease from the 54 per cent in 2008-09
to 53 per cent in 2010-11. While, the share of rest of urban region is expected to remain same at 34 per cent in
2010-11, the share of rural region is expected to see an increase of 1 per cent to 13 per cent in 2010-11 (as against
12 per cent in 2008-09).

Figure 21: Estimated ATS across regions for 2008-09 and 2010-11
1.97
1.04
0.43
1.131.11
0.45
1.16
1.98
4.5%
6.5%
0.8%
1.9%
0.0
0.5
1.0
1.5
2.0
2.5
Big cities Rest of Urban Rural Pan India
0%
1%
2%
3%
4%
5%
6%
7%
2008-09E 2010-11P Growth rate (RHS)
(Rs in mn)
Thus, because of higher proportion of disbursements expected to move to higher loan slabs across regions,
CRISIL Research estimates the region-wise ATS to register a positive growth in 2010-11 over 2008-09.
However, with the reduction in property prices at the end of 2008-09 and further expected in 2009-10, the ATS
for the Top 7 cities is expected to move marginally higher in 2010-11 (after factoring a single digit growth for
2010-11 in property prices) over 2008-09.
On the other hand, as the extent of price correction in the rest of urban region has not been that severe as in the
Top 7 cities, we estimate the ATS for rest of urban region to register a growth of 6.5 per cent in 2010-11 over
2008-09.
For the same reason, the ATS for the rural region is expected to move up to Rs 0.45 million, thereby registering a
growth of 4.5 per cent in 2010-11 over 2008-09.

Net profit margin (NPM) on incremental disbursements to
face pressure in 2009-10
The launch of competitive home loan schemes by PSU banks in the recent past has led other player groups to react
and lower their interest rates, particularly for new customers. Thus, with high differential between the rates being
charged to the existing and new customers, CRISIL Research has analysed the profitability of the player groups in
the housing finance industry separately - for existing and new customers.
Table 1: Profitability structure of banks vis-à-vis HFCs for 2009-10
Profitability structure HFCs Pvt banks PSU banks
(in per cent) Existing New Existing New Existing New
Yield 10.40-10.60 9.70-9.90 10.15-10.35 9.40-9.60 8.90-9.10 8.40-8.60
Cost of funds 8.00-8.20 7.45-7.65 7.90-8.10 7.40-7.60 7.15-7.35 6.90-7.10
Gross spread 2.30-2.50 2.15-2.30 2.20-2.30 1.90-2.10 1.65-1.85 1.40-1.55
Opex and CoA 0.30-0.50 0.30-0.50 0.40-0.60 0.40-0.60 0.65-0.85 0.65-0.85
Credit losses 0.05-0.10 0.75-0.10 0.15-0.30 0.10-0.25 0.20-0.30 0.20-0.35
NPM 1.80-2.0 1.65-1.85 1.50-1.65 1.25-1.45 0.75-0.85 0.45-0.60
Note
CoA: Cost of Acquisition
NPM: Net Profit Margin
• Yield for new customers are typically lower across player group as compared to existing customers, because
of competitive pressures. Further, the benefit of recent decline in the marginal cost of funds has also been
passed on to new customers to boost volumes.
• Yields for PSU banks are generally lower compared to other player groups, as they have a high proportion of
loans given under the priority sector i.e. below Rs 2 million. Further, recently announced concessional
schemes by PSU banks are also expected to put pressure on their yields.
• Private banks typically have higher share of term deposits compared to PSU banks (around 57 per cent for
PSU banks as against around 68 per cent for private banks – as on March 2007). As the interest rates on term
deposits are more sensitive to the overall interest rate environment, the cost of funds for private sector banks
are relatively higher as compared to PSU banks.
• Because of high administrative and employee cost per unit of business generated amongst PSU banks, their
operating expenses are higher compared to other player groups in the industry.
• PSUs banks might witness higher credit losses due to high proportion of their disbursements coming from
balance transfer cases. Based on our industry interactions, we understand that balance transfer cases typically
carry higher asset quality risk.
• Because of competitive pricing of home loans by PSU banks, CRISIL Research estimates the NPM of PSU
banks to remain under pressure. Further, in order to survive the competition, NPM for other player groups are
also expected to remain under pressure, especially for new customers.

Asset quality
Figure 22: Gross NPA ratio as on March 31
1.7%
2.2% 2.4%
2.7%
3.0%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
2004 2007 2008 2009E 2010P
Source: CRISIL Ratings
Intense competition in the past drove lenders to make their loans more attractive by lengthening tenures, and
offering higher LTV and IIR ratios. These changes allowed borrowers to borrow more than they would otherwise,
for a given income level and property value. Lenders also sought support from third party direct selling agents
(DSAs) in sourcing new business and in processing loan applications. This led to dilution in underwriting
standards. Also in the past, income for some DSAs were linked to the volumes of fresh loan applications, rather
than to the amount fully disbursed. Such an operational model acted as an incentive for DSAs to bring in potential
risky customers. However, lenders have now moved to a system where DSAs’ incentives are linked primarily to
disbursements.
By the time tighter norms and incentive changes were implemented, the results of aggressive lending had begun to
show up in poorer asset quality. A number of weak loans disbursed at high IIRs were exposed when the surge in
interest rates drove monthly instalments to amount up; borrowers could not repay instalments, and as a
consequence, NPAs in the mortgage segment rose rapidly.
The gross NPA ratio in this segment increased to around 2.4 per cent as on March 31, 2008, from around 1.7 per
cent as on March 31, 2004 within in the banking sector. Asset quality in this mortgage portfolio for the banking
sector is expected to deteriorate marginally over the next two years, with an increase in the delinquencies level to
about 3 per cent.
However, CRISIL Research believes that factors such as recourse to the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interests (SARFAESI) Act in foreclosing loans and under-
declaration of market value of properties, limit the ultimate losses for the lenders. Further, decline in interest rates
would partially offset the impact of risks such as the fall in borrowers’ income because of the economic
slowdown.

Mumbai
1061, Solitaire Corporate Park
Andheri-Ghatkopar Link Road,
Andheri (East), Mumbai 400 093.
Phone +91 (22) 6758 8035
FAX +91 (22) 6758 8088
New Delhi
The Mira, G-1, 1st Floor
Plot No. 1 & 2, Ishwar Nagar,
Near Okhla Crossing, New Delhi 110 065.
Phone +91 (11) 4250 5100, 2693 0117 - 121
FAX +91 (11) 2684 2212/13
E-mail: research@crisil.com
Bengaluru
W-101, Sunrise Chambers,
22, Ulsoor Road,
Bengaluru 560 042.
Phone +91 (80) 4117 0622
FAX +91 (80) 2559 4801
Kolkata
Horizon, 4th floor,
57 Chowringhee Road,
Kolkata 700 071.
Phone +91 (33) 2283 0595
FAX +91 (33) 2283 0597
www.crisil.com

Housing Finance Disbursements to De-grow 7% in 2009-10

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