document14

International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421 Volume 2, No. 7, July 2013

i-Xplore International Research Journal Consortium www.irjcjournals.org

82

Operational and Financial Performance Evaluation of Housing

Finance Companies in India

(A Case Study of LIC Housing Finance Limited and HDFC)

Dr. P.S. Ravindra, Associate Professor, Miracle School of Management, Miracle Educational Society Group of

Institutions, Miracle City, Bhogapuram, Vizianagaram (Distt), A.P, India

Dr. P. Viswanadham, Professor, Department of Commerce & Management Studies, Andhra University,

Visakhapatnam, Andhra Pradesh, India

Ch. Trinadha Rao, Assistant Professor, Miracle School of Management, Miracle Educational Society Group of

Institutions, Miracle City, Bhogapuram, Vizianagaram (Distt), A.P, India

ABSTRACT

Housing being the one of the essential needs of mankind,

the demand for shelter grows in line with the increase in

population and the standard of living; hence the need of

financing the purchasing of a House came up. The

importance of the housing sector can be judged by the fact

that we consider house as the best investment and want to

invest our hard earned money or saving in a house. The

need for Finance to purchase a house brought out

specialized Housing Finance Institutions. The Housing

Finance Companies (HFCs) as they are called today have

stepped up their lending over the years contributing to the

growth of the housing sector. Historically, even as banks

had slightly lower lending rates, housing finance

companies scored on superior customer service, lower

operating costs, long-term funding sources and focussed

lending to fend off the competition. For instance, the cost-

to-income ratios of HDFC and LIC Housing Finance are

7.6 per cent and 14.1 per cent respectively during March

2012 fiscal compared to 44.2 per cent in the case of banks.

Housing finance companies have steadily increased their

market share over the last few years; it rose from as low

as 28 per cent in March 2007 to an estimated 34.6 per

cent as of March 2012. Top housing finance companies

such as HDFC, LIC Housing Finance witnessed loan book

growth of 22-37 per cent during the year ended March

2012, thereby increasing their market share. Keeping this

facts the present paper given an attempt to evaluate the

operational performance of LIC Housing finance Limited

and HDFC.

Keywords: Housing, Housing Finance, Performance Evaluation,

Operational Parameters, Financial Parameters

1. INTRODUCTION

Housing is the one of the basic needs for every human

being, with Food, Clothing and Education being the other

three. Housing is an important component and a measure

of socioeconomic status of the people. It is regarded as a critical sector in terms of policy initiatives and

interventions. The relevance of housing as a social need

has been long recognized, and this has influenced the

innovations and inventions made by mankind, since the

Stone Ages. The emergence of a number of HFCs in

organized and unorganized sectors has brightened the

economic scenario. The potential for the HFCs is vast. The

success of HFCs depends on how effectively they can tap

resources. Fortunately, during the last couple of years, lot

of emphasis has been placed on creating an integrated

national housing finance system. With the creation of

National Housing Bank, an apex housing finance

institution, housing finance has received added impetus.

The urban population of India has been growing at a rapid

pace. As per the Census 2011, 31.16 per cent of the total

population is in the urban areas. The shortage of housing

units for the urban areas for 2012 is estimated at 18.78

million units.

The housing sector has strong backward and forward

linkages to over 250 ancillary industries which includes

construction workers, builders, developers, suppliers, civil

engineers, valuers, property consultants, furnishers,

interior decorators, and plumbers a virtually unending list. Housing ranks fourth in terms of the multiplier effect

on the economy and third amongst 14 major industries in

terms of total linkage effect. After agriculture, the

housing and real estate industry is the second largest

employment generator in India. The sector is labour

intensive and, including indirect jobs, provides

employment to around 33 million people. It is estimated

that about 70 per cent of these are employed in the

infrastructure segment and the remaining 30 per cent in the

real estate segment. According to industry estimates, the

industry is expected to generate additional employment of

47 million, with the total number of persons employed in

the sector reaching 83 million persons by 2022. Housing

and building activity levels have significant



83

macroeconomic effects -directly in terms of the consumer

price index and interest rates, and indirectly in terms of the

'wealth' effect on spending levels and multiplier effects

from employment in the sector.

With time, there has been expansion and improvement in

the housing finance market by way of various financial

reforms; however the housing loans as a percentage of

GDP have remained at around 7 per cent, significantly

lower than the levels achieved in most of the developed

countries. It indicates the extent of opportunity for deeper

penetration of such market. With improving demographics

and economies of scale, the mortgage to GDP ratio is

likely to increase. The stakeholders, however, need to

reckon with problems and impediments in the process

which may arise from changes in the economic cycle,

uncertainties surrounding land acquisition policies,

changes in the policy framework and systemic risk that

could arise out of rapid credit expansion with lax due

diligence standards.

HDFC is considered to be the benchmark in the housing

finance sector given the consistency of earnings and

sustainable growth rate; hence the performance has

compared LICHF with HDFC on five key metrics

(consistency, transparency, brand name and customer

service, distribution and quality of book). Despite the

valuation discount, LICHF rates consistently lower than

HDFC on only one of these metrics. In this context the

present paper attempts to study financial performance of

LICHFL and HDFC in India. The rest of the paper is

organised as follows: Section II deals with the objectives

of the study, Literature review, period of the study and

Methodology. The key operational and financial indicators

of LICHFL and HDFC were analyzed and presented in

Section III. Section-IV describes the conclusion of the

paper.

2. OBJECTIVES OF THE STUDY

The broad objectives of the study are:

1. To observe and analyze the operational performance of LIC Housing Finance Limited and

Housing Development Finance Corporation

Limited.

2. To study the financial performance of LIC Housing Finance Limited and Housing Development

Finance Corporation Limited in various parameters.

2.1 Literature Review:

Many studies have been undertaken in the field of housing

finance companies. As some of them are directly or

indirectly related to the present study of housing finance

by LICHFL and HDFC, a review is made of such studies,

which have greater relevance to the subject matter of the

present study.

The observation of Roy (2002)6 shows that a dominant

role is played by LICHFL in extending the liberal finances

to the housing sector. Jasmindeep et.al. (2005)1 in their

study entitled Performance of Housing Finance Companies observed that HDFC comes at the top among all the institutions as far as loan sanctioned, disbursements

and the loan outstanding are concerned, PNB has the last

rank for both loans sanctioned and disbursed. However,

the compound growth rate for the loan sanctioned

disbursement and outstanding has been highest in the case

of LICHF.

Srinivas S.P. (2006)8 in his study revealed that

disbursement of home loan increased at increasing growth

rate during the growth rate of disbursement in 2000-01

compared to the earlier year was 13.7% which increased

up to 76% in 2002-03. The reasons behind the growth in

housing loans are, (i) Easy availability of housing loans

(ii) Growing population (iii) Nuclear family system (iv)

Newer segments for finance (v) Urbanization of Indian

economy (vi) Shortage of dwelling units (vii) Declining of

cost of house to income ratio etc and, (viii) Tax benefits.

Singh Fulbag et.al. (2008)9 in their study on Housing Finance in India A Case Study of LIC Housing Finance Limited stated that the main objective of the bank is to promote and establish the housing financial institutions in

the country as well as to provide refinance facilities to

housing finance corporations and scheduled commercial

banks. Moreover, for the salaried section, the tax rebates

on housing loans have been introduced. The paper is based

on the case study of LIC Housing Finance Ltd., which

analyzes region-wise disbursements of individual house

loans their portfolio amounts and the defaults for the last

ten years, i.e., from 1995-96 to 2004-05 by working out

relevant ratios in terms of percentage and the compound

annual growth rates.

Rao K.N. (2010)7 in his article Housing Finance A Global Perspective mentions in this article that home loans have been registering exponential growth in India

during the last six years. Easy liquidity conditions, low

interest rates, availability of tax shelters on repayment of

principal and interest surging demand from middle income

group borrowers, lower regulatory capital, the comfort of

tangible security have all collectivity contributed to the

spurt in home loans. HDFC and LICHFL are the major

players in disbursement of home loans. These banks

sanction upto 85% of the cost of the property as home loan

for a maximum period of 20 to 30 years.

Sivaramakrishna (2012)2 reveals that HDFC is able to

maintain recovery rate of nearly 98 %. In general, the

LICHFLs performance is worth praising in the field of housing finance.



84

2.2 Period of the Study:

For the purpose of study, period 1997-98 to 2011-12 was

taken in to consideration. This period was chosen

particularly because; there was a sudden boom in the

house construction activity during these years in India.

2.3 Research Methodology:

The database for the study consists of secondary data. The

annual reports of the Housing Development Finance

Corporation Ltd., LIC Housing Finance Ltd., are the

secondary sources of data for the study. The data was

analyzed by financial ratios, compound growth rates,

percentages, Chi-square test, etc.,

3. DATA ANALYSIS AND RESULTS The performance of LICHFL and HDFC can be measured

on many parameters. The key operational and financial

indicators of LICHFL and HDFC were analyzed and

presented in following Tables.

Operational Parameters

3.1 Loans Disbursement to Sanctions The loan disbursements to sanctions indicate the actual

outflow of cash from the companies. The loans sanctioned

were only book figures. The actual disbursements reveal

contribution made by the housing companies for

increasing the dwelling units in the country. Table

no.6.1.1 gives the description of loans sanctioned and

disbursed by the LIC Housing Finance Limited and

Housing Development Finance Corporation during the

period 1997-98 to 2012-13.

Table No.3.1: Loan Disbursements to Loan Sanctions of LICHFL and HDFC

(Rs.In crores)

Year

Loan Sanctioned

Loan Disbursements

% of Loan

Disbursements to Loan

Sanctioned

LICHFL HDFC LICHFL HDFC LICHFL HDFC

1997-98 872.53 3251.27 802.10 2753.61 91.93 84.69

1998-99 1087.96 4071.76 965.76 3424.27 88.77 84.10

1999-00 1433.58 5305.15 1312.59 4492.74 91.56 84.69

2000-01 1743.69 6879.77 1608.37 5803.01 92.24 84.35

2001-02 2109.85 9041.25 2018.16 7616.56 95.65 84.24

2002-03 3593.44 11731.57 3190.83 9950.87 88.80 84.82

2003-04 4693.41 15215.56 4103.81 12696.82 87.44 83.45

2004-05 5209.18 19715.33 4650.42 16206.75 89.27 82.20

2005-06 5147.03 25633.67 4895.51 20679.20 95.11 80.67

2006-07 6105.23

33331.93 5121.10 26177.99 83.93 78.54

2007-08 8618.21 42520.00 7071.24 32874.99 82.05 77.32

2008-09 10898.47 49166.00 8762.01 39650.00 80.40 80.65

2009-10 18,043.17 60,611.00 14,852.93 50,413.00 82.32 83.17

2010-11 22602.92 75,185.00 19912.39 60,314.00 88.09 80.22

2011-12 22034.50 90,154.00 20027.07 71,113.00 90.89 78.88

(Sources: Loan disbursement register of LICHFL & HDFC)

The amount of housing loans sanctioned by LICHFL had

increased from Rs.872.53 crores in 1997-98 to Rs.

22034.50 crores in 2012-13 and the amount of

disbursements increased from Rs.802.10 crores in 1997-98

to Rs. 20027.07 crores in 2012-13. Where as in HDFC the

amount of housing loans sanctioned had increased from

Rs.3251.27 crores in 1997-98 to Rs. 90,154 crores in

2012-13 and the amount of disbursement increased from



85

Rs.2753.61 crores in 1997-98 to Rs. 71,113 crores in

2012-13.

The percentage of loans disbursed to loans sanctioned of

LICHFL varied from 80.40 per cent to 95.65 during the

study period. In the year 1997-98 the percentage of loan

disbursed to loans sanctioned is 91.93 and it was increased

to 95.65 per cent in 2001.02. In the year 2004-05 it was

decreased to 89.27. In the year 2005-06 the loan

disbursement to loan sanctioned ratio increased to 95.11.

From 2006-07 this was decreased year by year and

recorded as 80.40 per cent in the year 2008-09. There

after it was increased gradually and marked as 90.89 at the

end of 2012-13. In indicates that the LICHFL recovered

from the financial disasters.

Where as in case of HDFC the percentage of laons

disbursed to loans sanctioned varied from 77.32 to 84.82

during the study period. From the year 1997-98 to 2002-

03 it was varied from 84.10 percent to 84.82 per cent.

From the year 2003-04 to 2007-08 it was continuously

decreasing year by year and It was recorded as least in the

year 2007-08 with 77.32 due to financial disaster. In the

year 2009-10 the percentage of loan disbursement to loans

sanctioned increased to 83.17 percent. There after it was

decreased to 78.88 by the end of the study period.

The analysis of disbursements made to loans sanctioned of

the two companies leads to the conclusion that the LIC

Housing Finance Limited had more consistency with an

avegare of 88.56. HDFC followed LIC Housing Finance

Ltd in consistency with an average of 82.13. In order to

know whether there was any significant difference

between the companies with regard to loans disbursed to

loans sanctioned, the following hypotheses were

formulated and they were tested through the Chi-square

test.

H0: There is no significant difference between the

companies in regard to loan disbursements to sanctions.

H1: There is significant difference between the companies

in regard to loan disbursements to sanctions.

The Chi-square indicates that the calculated value 1.32 is

less than table value i.e 21.03 at 0.05 significance. Hence

we accepted the null hypothesis (H0) and rejected

alternative hypothesis (H1). It means that the sample

companies under study are significantly not different in

these patterns of loan disbursals and loan sanctions. In

other words these companies have the same proportion of

disbursements in sanctions.

It was further observed that the percentage increase in the

loan sanctioned by LICHFL during first six years of the

above period is around 3.88 times compare to the base

figure of 1997-98. Whereas in case of HDFC the growth

percentage of loan sanctioned fluctuated between 25.24

percent to 31.42 per cent during the same period. The

growth percentage of loan sanctioned by LICHFL and

HDFC was 24.69 and 25.23 per cent in 1998-99 and they

were increased to 70.31 and 29.75 percent in 2002-03. In

the year 2011-12 the growth percentage of loan sanctioned

by LICHFL and HDFC decreased to (2.51) and 19.91 per

cent respectively due to the entrance of scheduled

commercial banks and stiff competition in the housing

industry. The growth percentage of loan disbursements of

LICHFL highest in the year 2002-03 with 58.11 and

lowest in the year 2011-12 with 0.58. In the case of

HDFC the growth percentage of loan disbursement highest

in 2001-02 with 31.25 percent and lowest in the year

2011-12 with 17.90.

3.2 Composition of Loan Disbursement:

The LICHFL and HDFC deliver two types of loans

namely individual and corporate. The individual loans are

sanctioned to individual persons including the Non-

Resident Indians for the purpose of purchasing of plots

and purchase/construction/extension/repair/renovation

/improvement of houses. Personal business needs,

consumer durable and medical professional requirements

are also conversed by the loans.

The loans are sanctioned to the corporate bodies for

construction of staff quarters and on ownership basis to

their employees, to public bodies, developer and builders

for development of housing projects. The loans are given

for dwelling units on ownership basis to employees under

Line of Credit-To and Line of Credit-Through schemes. The loans are disbursed for the construction of

staff quarters of employees and housing co-operative

societies of employees. Regarding the individual housing

loan, the total amount disbursed by LICHFL had increased

from Rs. 769.31 crores in 1997-98 to Rs. 19,117.50 crores

in 2011-12. The amount disbursed in the case of corporate

loans had increased from Rs.32.79 crores in 1997-98 to

Rs. 909.57 crores in 2011-12. Whereas in case of HDFC

the total amount disbursed had increased from Rs.1851.52

crores in 1997-98 to Rs. 47766.6 crores in 2011-12. The

amount disbursed in the case of corporate loans had

increased from Rs.902.09 crores in 1997-98 to 23346.4

crores in 2011-12.

The table no.3.2 gives the description of the percentage of

composition of loans disbursed to individuals and others

by the LIC HFL and Housing Development Finance

Corporation during the study period.



86

Table 3.2: Composition of Loan Disbursed by LICHFL and HDFC

(In percentage)

(Sources: Loan disbursement register of LICHFL & HDFC)

From the above table it was observed that the proportion

of individual loans disbursement to the total loan amount

disbursed by LICHFL had increased from 95.91 per cent

in 1997-98 to 99.31 per cent in 2001-02. In case of

corporate loans the proportionate percentage to the total

loans disbursed is only 4.09 per cent in 1997-98 and it was

decreased to 0.69 in 2001-02. Where as in case of HDFC

the proportion of individual loans disbursed to the total

loan amount disbursed had increased from 67.24 per cent

in 1997-98 to 69.26 per cent in 2001-02, The proportion of

corporate loans disbursement to the total loans disbursed is

32.76 per cent in 1997-98 and it had decreased to 30.74

per cent in the year 2001-02. It indicates in concentration

of these two housing financing agencies on individual

housing loans than on corporate loans. The proportion of

individual loans to the total loans of LICHFL was

recorded as 95.46 per cent, corporate loans 4.54 per cent

and in case of HDFC the proportion of individuals and

corporate loans was 67.17 per cent and 32.83 per cent

respectively in the year 2011-12.

3.3 Average Size of Loans:

The housing loan amount varied from loanees to loanees

and from sector to sector. The range of housing loan

varied from few thousand to few crores. The average loan

size was calculated by the quantum of loan disbursed and

the number of loans disbursed during a particular year.

The average loan size indicated the investment pattern of

the housing financial agencies on various housing

schemes. The average loan size disbursed by the HDFC

and LICHFL is calculated from 1997-98 to 2011-12 and

the details are presented in table 3.3

YEAR

LICHFL HDFC

% of Individual

Loans to Total Loans

Disbursed

% of Other Loans

to Total Loans

Disbursed

% of Individual

Loans to Total Loans

Disbursed

% of Other Loans

to Total Loans

Disbursed

1997-98 95.91 4.09 67.24 32.76

1998-99 97.84 2.16 64.28 35.72

1999-00 97.90 2.10 77.42 22.58

2000-01 99.29 0.71 70.12 29.88

2001-02 99.31 0.69 69.26 30.74

2002-03 85.91 14.09 72.19 27.81

2003-04 89.38 10.62 69.20 30.80

2004-05 90.47 9.53 67.14 32.86

2005-06 95.40 4.60 66.87 33.13

2006-07 95.71 4.29 65.12 34.88

2007-08 83.47 16.53 67.24 32.76

2008-09 83.90 16.10 65.48 34.52

2009-10 83.81 16.19 66.67 33.33

2010-11 87.95 12.05 67.24 32.75

2011-12 95.46 4.54 67.17 32.83



87

Table 3.3: Average Loan Size of LICHFL and HDFC

Year

LICHFL HDFC

Average Loan

Amount

(Rs. In lakhs)

Year to Year

Growth in

percentage

Average Loan

Amount

(Rs. In lakhs)

Year to Year

Growth in

percentage

1997-98 2.20 - 5.01 -

1998-99 2.48 12.72 5.12 2.19

1999-00 2.81 13.25 5.69 11.14

2000-01 3.08 9.44 6.12 7.55

2001-02 3.16 2.57 6.88 12.42

2002-03 4.16 31.84 7.98 15.99

2003-04 4.42 6.22 8.46 6.02

2004-05 5.51 24.65 9.24 9.22

2005-06 5.99 8.72 9.45 2.27

2006-07 7.64 27.59 10.48 10.90

2007-08 11.44 49.63 12.67 20.90

2008-09 13.03 13.93 15.24 20.28

2009-10 15.18 16.47 17.53 15.03

2010-11 12.33 -18.75 18.60 6.10

2011-12 14.87 20.59 19.50 4.84

From the table No.3.3 the average loan size of LICHFL

had increased from Rs.2.20 crores in 1997-98 to Rs.14.87

crores in 2011-12 and growth in the average loan size was

12.27 per cent and 12.72 per cent in 1997-98 and 1998-99

respectively and it increased to 31.84 per cent in 2002-03.

During the study period the year of year growth per cent is

higher at 49.61 per cent in 2007-08. In the year 2011-12 it

was recorded as 20.59 percentage where as HDFC it was

4.84 percent only.

In case of HDFC the average loan size increased from

Rs.5.01 crores in 1997-98 to Rs.19.50 crores in 2011-12.

At the same time the year of year growth in average loan

size highest with 20.28 per cent in 2008-09 and lowest

with 2.20 per cent in 1998-99. In the year 2002-03 the

growth rate increased to 15.95 per cent as compared to

1998-99 but it was decreased to 2.27 per cent in the year

2005-06 and it was increased to 20.90 per cent and 20.28

per cent in 2007-08 and 2008-09 respectively. There after

gradually reduced to 4.84 by the end of 2011-12. The

analysis concludes that LICHFL having good growth

record and consistency in average loan size then the

HDFC

While compare with LICHFL the average loan size of

HDFC is 2.27 times against LICHFL at the beginning of

the study period and it was 1.30 times at the end of the

study period. It is very interesting to note that the average

loan size of LICHFL nearly to HDFC from the year 2007-

08.

During the study period, the average loan size of LICHFL

and HDFC had increased year to year; it shows that the

amount of loan borrowed by the beneficiaries as housing

financing had been gradually increasing due to higher

requirement.

Financial Parameters

3.4 SHORT TERM SOLVENCY ANALYSIS:

3.4.1 Current Ratio:

From the table 3.4 it can be seen that the current ratio of

LICHFL during the study period varied from least of 1.21

to maximum of 2.71, where as in case of HDFC the

current ratio varied from least of 0.29 to the highest of

2.17 which is a good sign to LICHFL but not to HDFC.

As from the table, in the year 2000-01 the current ratio of

LICHFL was 2.59 and it was increased to 2.67 in the year

2001-02. In the year 2004-05 the ratio decreased to 2.49

because there was an increase in current liabilities when



88

compared to previous years. In the year 2005-06, there

was a slight increase in the ratio, which was 2.58, which

was an ideal ratio to be maintained by the company.

There after the current ratio continuously decreased year

by year and reached to 1.59 in the year 2011-12 because of

there was a drastic decrease in the current assets and a

slight increase in current liabilities. In the case of HDFC

in the year 2000-01 the ratio was 12.37 gradually

increased to 2.29 by the year ended 2007-08 because of

decrease in current assets. In the year 2011-12, when

compared to 2000-01, there was a drastic decrease in

current ratio which was showed a ratio of 0.29. When

compare with LICHFL the ability of HDFC to meet the

short-term financial commitments is very less.

To examine whether there was any significant difference

in the current ratio of two companies, the following

hypotheses were formulated and tested through the Chi-

square test.


companies in regard to current ratio.


in regard to current ratio.

It is found that the null hypothesis was rejected at 5% level

of significance as the calculated value 2.09 is greater than

the table value i.e.19.68. Therefore, it is inferred that there

is significant difference with regard to current ratio

between the two companies.

3.4.2 Quick Ratio

From the table 3.4, it can be analysed that the quick ratio

of LICHFL ranged from 1.2 to 2.7 and in the case of

HDFC 0.29 to 2.28 during the study period. In the year

2000-01 the liquid ratio of LICHFL was 2.59 and it

increased to 2.7 in the year 2003-04. In the year 2006-07

it was decreased to 2.03 because of there was a decrease in

liquid asset when compared to previous year. In the year

2011-12, when compared to the year 2000-01, there was a

decrease in the liquid ratio to 1.58 but still the company

maintaining the ideal liquid ratio. Where as in case of

HDFC the liquid ratio in the year 2000-01 is 1.23 it was

gradually increased year by year to 2.16 in the year 2005-

06. In the year 2006-07 there was a slight decrease in the

liquid ratio which was 2.13. In the year 2007-08, though

there was an increase in the liquid liabilities, the company

maintained a ratio of 2.28. The overall view on the quick

ratio is that the company is maintaining an ideal ratio

except 2011-12.

To examine whether there was any significant difference

in the liquid ratio of two companies, the following

hypotheses were formulated and tested through the Chi-

square test.


companies in regard to liquid ratio.


in regard to liquid ratio.

It is found that the null hypothesis was rejected at 5% level

of significance as the calculated value 2.09 is greater than

the table value i.e.19.68. Therefore, it is inferred that there

is significant difference with regard to current ratio

between the two companies.

Table 3.4: Short term solvency of LICHFL and HDFC



89

3.5 CAPITAL STRUCTURE RATIO ANALYSIS

3.5.1 Debt-Equity Ratio:

It is more specifically highlighted as an expression of

relationship between that long-term debt and shareholders funds. The ideal norm is 1:2 which means that every one

rupee of debt finance is covered by two rupees of

shareholders funds. Higher ratio indicates the riskier

financial status of the firm, which means that the firm has

been financed by a bigger outsiders fund rather than that

of the owners fund contribution and vice versa.

From the table 3.5 it is observed that the debt equity ratio

of LICHFL was 0.82 in the year 2000-01, and it ranged

from 0.84 to 1.81 in the subsequent years of the study.

Where as in case of HDFC it ranged from 0.56 to 1.01

during the study period. It is very fascinating to note that

the debt equity ratio of LICHFL is gradually increased

form 2000-01 to 2007-08 starting from 0.82 to 1.12 but in

HDFC it is fluctuated during the study period. On

comparison between LICHFL and HDFC the debt equity

position of HDFC is high-quality against LICHFL.

3.5.2 Debt Ratio

Like debt equity ratio, it shows proportion of long-term

debt in capital employed. Low ratio provides security to

creditors and high ratio helps management in trading on

equity. It may be noted that Debt Ratio can also be

computed in relation to total assets. It usually refers to the

ratio of total debt (long-term debt + current liabilities) to

total assets.

From the table, it is observed that the Debt ratio of

LICHFL and HDFC is less than one from 2000-01 to

2004-05, which means that the companies is financing its

fixed assets through its total long term as well as current

liabilities. In the year 2000-01 the Debt ratio of LICHFL

is 0.82 and it was increased to 0.84 by the end of 2011-12,

whereas in case of HDFC it was 0.65 in 2000-01, which

increased to 1.04 in the year 2005-06. There after it was

gradually decreased to 0.50 by the end of 2011-12.

3.5.3 Interest Coverage Ratio

The firms are expected to make the payment of interest on

the amount of borrowings without fail. This ratio

facilitates the prospective lender to study the strength of

the enterprise in making the payment of interest regularly

out of the total income. To study the capacity in making

the payment of interest is known as interest coverage ratio

or debt service converge ratio.

Greater the ratio means better the capacity of the firm in

making the payment of interest as well as greater the

safety and vice versa. Lesser the times the ratio means

meager the cushion of the firm which may affect the

solvency position of the firm in making payment of

interest regularly.

From the table, it is observed that the interest coverage

ratio of LICHFL was lowest in the year 2000-2001 with

1.28 and highest in the year 2003-04 with 1.37 and again

there was slight decrease for the next five years. Where as

in HDFC the ratio was lowest in the year 2000-01 with

1.35 and highest in the year 2004-05 with 1.666, there was

a decrease from the year 2005-06 to end of the study

period.

Table 3.5: Capital Structure Analysis of LICHFL and HDFC

(Sources: Annual Reports of LICHFL & HDFC)

YEAR DEBT EQUITY DEBT

INTEREST

COVERAGE

LIC HDFC LIC HDFC LIC HDFC

2000-01 0.82 0.65 0.82 0.65 0.128 0.135

2001-02 0.84 0.69 0.84 0.69 0.129 0.139

2002-03 0.86 0.74 0.86 0.76 0.134 0.145

2003-04 0.96 0.78 0.95 0.84 0.137 0.157

2004-05 0.93 0.88 0.92 0.94 0.131 0.166

2005-06 1.03 1.01 1.02 1.04 0.130 0.163

2006-07 1.06 0.98 1.05 1.03 0.130 0.154

2007-08 1.12 0.56 1.11 0.57 0.135 0.153

2008-09 1.11 0.58 1.13 0.63 0.136 0.139

2009-10 1.01 0.58 1.02 0.63 0.138 0.156

2010-11 1.07 0.64 1.08 0.66 0.135 0.165

2011-12 0.81 0.39 0.84 0.50 0.125 0.153



90

3.6 PROFITABILITY ANALYSIS

3.6.1 Gross Profit Ratio:

From the table 3.6, it can be observed that the Gross Profit

of LICHFL varied from 84.6 percent to 95.54 percent

during the period of study. In the year 2000-01, the ratio

was 95.13 percent, the ratio gradually decreased in the

next subsequent years till 2005-06 thereafter it was again

gradually increased to 95.54 percent by the year 2009-10.

The Gross Profit of HDFC ranging from 94.25 percent to

96.91 percent during 2000-01 to 2011-12. In the year

2000-01 it was 94.25 percent and it was gradually

increased in the subsequent years to 96.91 percent in

2011-12. While compare with LICHFL the company

having the stability in gross profit ratio.

3.6.2 Net Profit Ratio:

From the table it can be observed that the Net Profit of

HDFC was 19.9 percent in the year 2000-01 and it was

gradually increased to 30.39 percent in the year 2004-05,

due to increase in operational cost this was decreased to

20.71 percent in 2008-09; it increased in the next year to

27.44 percent and it was recorded as 23.9 percent by the

end of study period i.e. 2011-12. In LICHFL the ratio was

fluctuated between 15.93 percent to 21 percent. In the

year 2000-01 it was 15.93 percent and it was decreased to

13.72 in the year 2004-05. Again it was increased in the

subsequent years and marked as 21 percent in the year

2010-11. By the end of the study period the ratio got down

to 14.89 percent due to increase in operating expenses. It

is interesting to point out that the profitability position of

HDFC is better than LICHFL.

3.6.3 Operating Profit Ratio:

From the table, it is observed that the LICHFL maintained

an ideal operating ratio during the period of study, varying

from 84.93 percent to 95.73 percent. In the year 2000-01

it was 95.28 percent and it was gradually decreased for the

next four years to 84.93 percent. Again it was increased to

88.23 percent in the year 2005-06 and continued

increasing for next three years of the study to 95.73

percent. In case of HDFC in the year 2000-01the

operating ratio 96.17 percent, which is nearest for the first

eight years of the study period thereafter it was increased

to 97.04 percent in the year 2008-09 and remains constant

by the end of the study period i.e.2011-12.

3.6.4 Return on Net worth:

From the table, it can be observed that the RONW of

LICHFL was varying between 12.02 percent to 23.79

percent. In the year 2001-02 it was 20.02 percent and

decreased to 12.02 percent in 2004-05. Again it was

increased continuously for the subsequent year to 23.79

percent in the year 2008-09; thereafter fluctuated between

16.08 percent to 23.37 percent. In HDFC the RONW

varied from 17.37 percent to 28.28 percent in the study

period. In 2000-01 it was 19.96 percent and gradually

increased continuing to 28.28 in 2006-07. It was

decreased to 17.37 percent in 2008-09; thereafter

gradually increased to 21.67 percent by the end of study

period. When compare with LICHFL the company has

more RONW against LICHFL during the study period

except 2008-09.

3.6.5 Earning Per Share (E.P.S):

From the table No.3.6, it can be observed that Earnings

Per Share of LICHFL was lowest at Rs.16.19 in 2000-01

and highest of Rs.69.75 in 2009-10. Where as in HDFC it

was lowest at Rs.24.10 in 2010-11 and highest at Rs.98.45

in 2009-10. However, the EPS of HDFC is high when it

was compared to the LICHFL during the study period. It

was further observed that the trend of EPS of HDFC was

continuously increased form 2002-03 to 2009-10 but in

LICHFL it was gradually increased up to Rs.23.88 for the

first three years thereafter in the year 2003-04 it was

decreased to Rs.22.35. In the year 2004-05 it was

Rs.16.92 because of there was a deceased in profits

available to equity shareholders. From the year 2005-06

on wards it was again gradually increasing to Rs.69.75 in

the year 2009-10.

Table 3.6: Profitability Analysis of LICHFL and HDFC

GP (%) NP (%) OP PRO (%) RONW (%) EPS (Rs.)

YEAR LIC HDFC LIC HDFC LIC HDFC LIC HDFC LIC HDFC

2000-01 95.13 94.25 15.93 19.90 95.28 96.17 19.04 19.96 16.19 39.44

2001-02 94.34 94.88 16.81 21.48 94.49 96.06 20.02 21.45 19.67 47.65

2002-03 93.2 95.07 17.57 23.19 93.37 95.94 20.8 22.67 23.88 28.24

2003-04 89.02 94.55 16.78 27.67 89.9 95.32 17.42 25.09 22.35 34.54

2004-05 84.6 94.66 13.72 30.39 84.93 95.21 12.02 26.69 16.92 41.61

2005-06 87.87 94.93 16.52 29.38 88.23 95.37 15.5 28.13 24.56 50.38

2006-07 91.78 95.69 17.82 26.63 92.03 95.98 18.08 28.28 32.87 62.07



91

2007-08 92.48 96.26 17.82 29.72 92.65 96.46 21.13 20.39 45.59 85.77

2008-09 94.46 96.88 18.37 20.71 94.64 97.04 23.79 17.37 62.59 80.24

2009-10 95.54 96.7 19.05 24.87 95.73 96.86 19.54 18.59 69.75 98.45

2010-11 89.7 96.67 21.00 27.44 89.84 96.81 23.37 20.41 20.53 24.1

2011-12 93.57 96.91 14.89 23.90 93.69 97.03 16.08 21.67 18.11 27.91

(Sources: Annual Reports of LICHFL & HDFC)

4. CONCLUSION

The success of the LICHFL and HDFC in the housing

finance industry is in its marketing network. They have

more number of marketing personnel than the regular

office staff. Even though, these two housing agencies are

good in sanctioning loan disbursal and delivery of service

to the customers, they have to modify and differentiate

their services from other financial companies, which

assure maximum benefit to the customers. They have to

modify and differentiate their service packages according

to the need of the market segment in order to have a

permanent place in the housing industry. HDFCs RONW have been more consistent than LICHFs, but the book value growth rate is more consistent and higher on an

organic basis for LICHF; we would rate LICHFs disclosure standards as better than HDFCs; LICs agency base is one of the most potent and efficient distribution

forces in India and LICHF has one of the most efficient

operations with its Op.Exp/AUM (Operating Expenses to

Assets Under Management) ratio now below HDFCs. It might not be HDFC, but in our view LICHF is a very

strong housing finance company. It can be concluded that the consistency is observed in financial parameters of

LICHFL and HDFC over the years, and LICHF has

performed well in comparison with HDFC in both

financial and operational aspects during the study period.

REFERENCES

[1] Jasmindeep et.al. (2005) Performance of Housing Finance Companies Journal of Housing Economics, Volume 19, Issue 1, March

2005, Pages 38-50

[2] Krishna.M, Sivarama(2012), HDFC- Loan Recovery and Savings Mobilization, Financial Services Review, Volume 8, Issue 4, 2012, Pages 305-317

[3] Leelamma (1999)., Housing Finance in India, Indian Commerce Bulletin, New Delhi:, Vol.3, No.2,

September 1999.

[4] Malpass peter and Alen Murie (1991) Housing Policy and Practice. The Financial Framework, Fourth Edition, Macmillan. pp .183.

[5] Murthy, Annamalia. G. Madhav Rao, A.G (1985).Modern trend in Housing in Developing

Countries, Oxford and IBH Publishing Company, New Delhi, p .341.

[6] Roy, Pinto(2002)., HDFC -The Home Maker Business World, 29th Jan to 11th Feb, 2002. P-41.

[7] Rao K.N. (2010)., Housing Finance A Global Perspective Journal of Urban Economics, Volume 26, Issue 3, November 2010, Pages 348-360

[8] Srinivas S.P. (2006), The housing value-relevance of Governmental Accounting Information , Journal of Accounting and Public Policy, Volume 17, Issue

2, Summer 2006, Pages 91-11

[9] Singh Fulbag et.al. (2008), Housing Finance in India A Case Study of LIC Housing Finance Limited Journal of Urban Economics, Volume 63, Issue

1, January 2008, Pages 229-252

[10] Stuart Gabriel (2002), Special issue on Housing Policy Journal of Housing Economics, Volume 11, Issue

3, September 2002, Pages 183-186

[11] Varghese, K.V.(1983).Housing problem in India Economics and social aspects. Eurekha Publication , New Delhi.

[12] Venkateswarlu, U., (1998), Urbanisation in India: Problems and Prospects, New Age International Private Ltd., New Delhi,1998.

[13] W. Erwin Diewert (2009), The housing bubble and a new approach to accounting for housing in a CPI, Journal of Housing Economics, Volume 18, Issue

3, September 2009, Pages 156-171

REPORTS

1. Annual Reports of Housing Development Finance

Corporation Limited.

2. Annual Reports of LIC Housing Finance Limited.

document14

Documents