Housing finance resilience despite rate hikes – Implications for investors


Despite significant lending rate hikes over the past 18 months, India’s housing finance segment has not seen major asset quality challenges. Rising incomes are helping borrowers service higher EMIs even as interest costs increase.

Analysis for a layman

Home loans usually have floating rates tied to benchmarks like the RBI’s repo rate. As the repo rate rises to control inflation, banks and housing finance companies (HFCs) also increase their lending rates. This impacts borrowers through higher EMI outgo. However, data shows borrowers have managed to service loans well so far, helped by income growth and lower pre-Covid interest rates.

Housing finance resilience despite rate hikes

Original Analysis

The relative resilience of retail home loan portfolios highlights an important structural trend – India’s rising middle class. BROADER affordability has increased over the years, enabling accommodation of periodic interest rate volatility. Moreover, lenders have also used tenure extensions alongside EMI increases to prevent severe repayment pressure. However, there are limits to demand elasticity. Prolonged elevated rates will bite at some point. But near term data is reassuring regarding asset quality.

Impact on Retail Investors

For investors in housing finance firms and rate sensitives, the trends highlight the sector’s defensive traits that help cushion market shocks. Despite demand moderation, loan servicing has held up. This lends stability to names like HDFC, LIC Housing in investors’ portfolios. However, sustained high rates will cap upside. Investors need to track any early delinquency ticks for prolonged rate cycle risks.

Impact on Industries

The positive data helps loan growth and asset quality outlook for banks, HFCs. Also supports real estate sector stability. Refinancing demand boosts prospects of insurance, small finance banks. Home ancillary stocks also benefit. However, higher rates affect affordability if they persist and remain a risk.

Companies that will gain

HDFC, PNB Housing, DLF, IndiaBulls Real Estate

Companies that will lose

Interglobe Aviation, IRCTC


While housing finance has shown unexpected resilience so far, higher rates will bite at some point if sustained. But near term, data supplements supportive policy environment. For investors, it highlights defensive virtues of rate sensitives but warrants monitoring any prolonged demand risks.


Ray, Atmadip. “No Housing Finance Stress Yet Despite Rise in Lending Rates.” Economic Times, 12 December

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