Lower standard asset provisions will provide 1-2% upside to HFC's earnings - Kotak

RBI has reduced standard asset provisions and risk weights on housing loans. These regulations are applicable to banks for loans approved prospectively; we would expect NHB (the regulator of HFCs) to follow RBI and issue similar set of regulations for HFCs.

The existing regulations for HFCs with the revised regulations for banks. Key highlights : (1) Standard asset provision of 0.25% for housing loans of banks as compared to current provision of 0.4% for housing loans of HFCs, (2) risk weight of 35% for loans between Rs3-7.5 mn and LTV between 75-80%; this compares with 50% for HFCs and (3) risk weight of 50% for loans above Rs7.5 mn; this compares with 75% for HFCs.

We find 0.6-2.4% increase in our earnings estimates for HFCs under coverage, in case NHB follows RBI in cutting down standard asset provisions to 0.25% bps 0.40%. We will await the regulation from NHB before incorporating this in our forecasts.

Source : Equity Bulls

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