International Journal of Management and Social Sciences Research (IJMSSR)

Volume 2, No. 7, July 2013

ISSN: 2319-4421

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 costto-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

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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

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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.

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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.

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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

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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.

The performance of LICHFL and HDFC can be measured

on many parameters. The key operational and financial
Table No.3.1: Loan Disbursements to Loan Sanctions of LICHFL and HDFC
(Rs.In crores)
% of Loan
Loan Sanctioned
Loan Disbursements
Disbursements to Loan
Sanctioned
Year
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

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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

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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 200203 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.

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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 NonResident 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.

It was further observed that the percentage increase in the

loan sanctioned by LICHFL during first six years of the

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Volume 2, No. 7, July 2013

YEAR

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Table 3.2: Composition of Loan Disbursed by LICHFL and HDFC

(In percentage)
LICHFL
HDFC
% of Individual
% of Other Loans
% of Individual
% of Other Loans
Loans to Total Loans
to Total Loans
Loans to Total Loans
to Total Loans
Disbursed
Disbursed
Disbursed
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

(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

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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

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Table 3.3: Average Loan Size of LICHFL and HDFC

LICHFL

HDFC

Year

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

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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 200708.
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

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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 Chisquare test.
H0: There is no significant difference between the
companies in regard to current ratio.
H1: There is significant difference between the companies
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

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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 200506. 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 Chisquare test.
H0: There is no significant difference between the
companies in regard to liquid ratio.
H1: There is significant difference between the companies
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

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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 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.

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.

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.

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.

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

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

YEAR
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12

DEBT EQUITY
LIC
HDFC
0.82
0.65
0.84
0.69
0.86
0.74
0.96
0.78
0.93
0.88
1.03
1.01
1.06
0.98
1.12
0.56
1.11
0.58
1.01
0.58
1.07
0.64
0.81
0.39

DEBT
LIC
HDFC
0.82
0.65
0.84
0.69
0.86
0.76
0.95
0.84
0.92
0.94
1.02
1.04
1.05
1.03
1.11
0.57
1.13
0.63
1.02
0.63
1.08
0.66
0.84
0.50

INTEREST
COVERAGE
LIC
HDFC
0.128
0.135
0.129
0.139
0.134
0.145
0.137
0.157
0.131
0.166
0.130
0.163
0.130
0.154
0.135
0.153
0.136
0.139
0.138
0.156
0.135
0.165
0.125
0.153

(Sources: Annual Reports of LICHFL & HDFC)

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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 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.

3.6.4 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.

3.6.2 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.

3.6.5 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.

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

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

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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.

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Countries, Oxford and IBH Publishing Company,

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REPORTS
1. Annual Reports of Housing Development Finance
Corporation Limited.
2. Annual Reports of LIC Housing Finance Limited.

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