Strategic Financial Management for Housing Finance Companies in India: A Multivariate Approach

Housing Finance Companies (HFCs) have traditionally played a significant role in India's formal housing finance sector. However, their prominence has waned since the fiscal year 2003 when Commercial Banks (CBs) surpassed them in market share, holding over 70 percent of the market compared to HFCs' 28 percent. Cooperative sector institutions occupy a much smaller share, approximately 0.5 percent. Despite their specialization in housing finance, HFCs face increasing challenges to their market share and profitability, particularly the smaller ones. Many smaller HFCs have already succumbed to competitive pressures. The introduction of the 'Base Rate' by the Reserve Bank of India compelled commercial banks to charge higher lending rates to HFCs, placing additional cost pressures on these institutions. Given this evolving landscape, the financial performance of HFCs has become crucial for their survival and growth. In this context, this paper aims to achieve the following objectives: (i) provide an overview of the institutional housing finance system in India, (ii) conduct a comprehensive examination of the role of HFCs in the changing housing finance market, including their principal challenges, (iii) analyze the determinants of superior financial performance in HFCs using Multivariate Discriminant Analysis (MDA) methodology, and (iv) propose effective strategies to enhance the financial performance of HFCs in the context of financial management.