Gruh Finance: Home in on this niche player

Home loans are set to get cheaper with the steep cut in the repo rate by the RBI last week. But more than a reduction in loan rates, which can only increase affordability to some extent, it is the RBI’s proposal to reduce risk weights applicable to lower-value but well collateralised housing loans that have brought cheer to players, such as Gruh Finance. A subsidiary of Housing Development Finance Corporation (HDFC), Gruh Finance is one of the pioneers in the rural housing finance segment, providing small-ticket home loans to low-income groups in semi-urban and rural areas.

The RBI’s move will give a fillip to the government’s thrust on the affordable housing segment via its ‘Housing for all by 2022’ scheme. While the details are yet to be finalised, housing finance companies, such as Gruh Finance, that operate in the small-ticket-size segment will be key beneficiaries of this measure.

The stock now trades at a pricey 10.5 times one-year forward book, double that of Repco Home Finance. But the Gruh Finance stock has always commanded a substantial premium over peers, thanks to its consistent operational performance, strong parentage of HDFC, robust returns and good asset quality. While there are concerns over fall in real estate prices eroding the value of lenders’ loan portfolios, it is unlikely to have a major impact on low-ticket players, such as Gruh Finance, whose average loan size is under ₹10 lakh.

https://www.thehindubusinessline.co...me-in-on-this-niche-player/article7720653.ece