Why new housing norms will help banks but hurt financing cos

A sluggish day for the market today with the Sensex closing at 16,936, down 148 points over the previous day’s close. Nifty closed the day at 5091, down 47 points.Infosys and Tata Steel led the rally which started after European markets opened.

However the main attraction today were the HFC’s due to the new norms introduced by the National Housing Bank.

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Housing finance companies have been banned from levying of pre-payment penalty charges, which were generally levied when an account was shifted from one lender to another or on pre-closure of the loan. In order to prevent borrowers to move to a new lender, housing finance companies used to charge pre-payment penalties as high as 4 percent. This prevented the customer from moving to a new source despite lower rates.

The other norms is that all borrowers will have to pay the same rate irrespective of when the loan was taken. Housing finance companies earned a sizable portion of their income through penalty charges. These will vanish going forward, thus affecting their performance.

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As a result LIC Housing lost around 6 percent and closed at Rs 217 today.

But is the authority being fair on the banks by asking them to not distinguish between old and new borrowers?

Firspost investing editor feels the new housing norms are good for the banks as the cost of borrowing for banks are lower as they have access to low cost funds from current and savings account, which on an average cost around 3%. Housing finance companies on the other hand have to access fixed deposits or loans from other banks which have a cost between 8-10 percent and they lend on 11-12 percent, thus trading on very thin margins.

However, for housing finance companies if the interest rates are changed irrespective of the time frame, there will be a asset liability mismatch in their books.

Meanwhile, there were more stocks under pressure today. There was some good buying in the second of the day in Tata Steel, SBI and Bharti. But the rally was among selected stocks.And IT stocks did bounce back quite stongly.HCL Tech was among the prominent gainers of the day, the stocked ended 2 percent up at Rs 415.

Bajaj Finserve had moved up around 6 percent in early morning trade after it announced that the net profit had more than doubled in the current quarter. But, the profit from the insurance business did not match expectations and valuation for the company is largely dependent on its insurance segment. Hence the market witnessed some profit booking rather than buying.

Among the losers, Exide today shocked the market with its poor performance. It reported a 76 percent drop in profit at Rs 51 crore for for the quarter-ended Spetember, largely due to high led prices and a price cut taken by the company in the previous quarter.

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