Thursday, March 4, 2010


‘What if’ note highlights the potential of Indian consumer finance market In an idea piece today titled ‘
What if… Chinese and Indians used more personal credit?’, Asian product manager Simon Smiles highlights the potential consumer finance market size in India which could grow multi fold from current levels if penetration reaches a fraction of that in developed markets.

Under penetrated market
Consumer finance in India even after a healthy 23% CAGR growth during FY05- 09 is still fairly underpenetrated with housing loan to GDP at ~9% and total consumer loans to GDP at ~16%. Key players in the consumer market are 1) ICICI Bank 2) HDFC Group (HDFC Bank +HDFC) and 3) State Bank of India.

Structural drivers are in place
Falling dependency ratio, rising income levels, urbanization and banks’ increasing focus on consumer loans; all of these strengthen the prospects of consumer finance in our view. Attractive risk adjusted return (normally) in consumer loans is likely to make the business more competitive but incumbents are well placed in our view.

ICICI, HDFC (group) and SBI best placed; prefer ICICI the most
Consumer loan business is cost intensive which makes achieving scale critical in ensuring sustainable profitability. ICICI, HDFC group (HDFC+HDFC Bank) and SBI are market leaders across various consumer products. We find ICICI Bank attractively valued at 1.3x PBR FY2011E (standalone entity) while SBI (1.3x FY11E PBR) is our least preferred pick. HDFC and HDFC Bank are Neutral rated.

To read the full report: INDIA CONSUMER FINANCE