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Co-origination partnership with Indiabulls – to complement business growth

HDFC has entered into a strategic co-lending partnership with Indiabulls Housing Finance (IHFL) to offer retail housing loans at competitive rates. We believe the partnership will complement business growth for both the companies by jointly addressing the competitive as well as untapped home loan market. HDFC can leverage on IHFL’s potential scalability (IHFL is targeting to increase its retail customer base 1.5x by Mar’23 and 2x by Mar’25 and achieve a monthly disbursal run-rate of Rs15bn by Sep’21). For IHFL, the partnership is in line with its strategy to pursue asset-light growth, and will lend further credibility to the quality of its lending origination. Maintain BUY on HDFC with a target price of Rs3,231.

* Terms of arrangement:

* IHFL will originate and process retail home loans as per jointly formulated credit parameters and eligibility criteria.

* 80% of the loans will be on HDFC’s books and IHFL will retain 20%. HDFC’s share in every loan will be approved by its own credit and underwriting team.

* IHFL will service the loan account throughout the lifecycle of the loan.

* Participation by both the entities in extending credit facility shall be on a sharing of risk and reward basis on mutually agreed terms.

* Technology led co-lending is expected to help offer convenient and seamless experience to customers and help expand the companies’ reach to tiers-3&4 cities.

* Win-win arrangement for both the entities:

IHFL – valuable relationship lending credibility and pursuing scale aspirations

* This is in line with its strategy of pursuing asset-light growth business model.

* It will boost asset growth and revenues without consuming much capital. IHFL has stated it is targeting a monthly disbursal run-rate of Rs15bn by Sep’’21.

* Partnership with HDFC will lend cost advantage to IHFL and will make it relatively more competitive (for co-originated loans) than it is presently.

HDFC – will complement growth prospects and expand reach

* Co-origination partnership with IHFL will complement HDFC’s business growth to garner incremental business by jointly addressing the competitive as well as under-penetrated markets in the home loan segment.

* Given the potential scale of operations (that IHFL can achieve or has achieved earlier), it will add on to HDFC’s scale further. IHFL has targeted to increase its retail customer base 1.5x by Mar’23 and 2x by Mar’25.

* It will also help HDFC leverage on IHFL’s strength in the self-employed segment and jointly expand reach in tiers-3&4 locations. IHFL plans to add 50 technologyenabled smart branches in tiers-3&4 locations by Sep’21.

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