Where is the spread in Housing Finance yields?

1

Housing Finance borrow at 8.5% to 9% (see DHFL bond issue ) and lend at 9.5% for home loan - where is the spread , how is this business model viable ? Loan Against Property rates are 11.5% so that makes sense, but pure home loan …any toughts

2

I have taken the comfort from the fact that bond issue will make up about 10% of annual loan book so I am sure they will have access to more financial resource to give them a lower blended cost of capital.

3

There is a processing fee which is charged but that is not that significant which leaves me with the same question,how is the company making money with simple home loans ?

Dewan Housing Finance Corporation Limited is coming up with a NCD where it is offering 9℅+ Interest rate in addition to this there are commission payouts as well to brokers and sub brokers thereby taking the effective cost of funds to more than 9.55℅ which is the rate at which the offer home loans as stated on their website.

Issue Size & Allocation:

QIB: Rs. 3000 Crs (30%)
Corp: Rs. 1000 Crs (10%)
HNI: Rs.3000 Crs (30%)
Individual: Rs. 3000 Crs (30%)
Total: Rs. 10000 Crs (100%)

Interest Rate:

For Individuals
9.10% p.a. for 3 Years
9.15% p.a. for 5 Years
9.25 % p.a. for 7 Years

For Non Individuals
9.05% p.a. for 3 Years
9.05% p.a. for 5 Years
9.05 % p.a. for 7 Years

VP expects can you please help clear this doubt.