With rising competition in the housing loan market, Business Line caught up with Dewan Housing Finance’s Chairman and Managing Director, Kapil Wadhawan, to get his view on the market.
Excerpts:
With banks shifting their focus on home loans, is the competition affecting your loan growth?
If you look at our company’s half-year performance, the loans sanctioned rose 28.7 per cent and the disbursements were up 38 per cent.
More importantly, our focus is on the lower- and middle-income segments and our average ticket size is closer to Rs 8.5 lakh, which is among the lowest in the industry today.
Most of our lending today is to the priority sector segment, which has been given a big boost by the RBI through its recent guidelines.
How will the new priority sector lending norms benefit Dewan Housing?
I think they will benefit housing finance companies like ours whose prime focus is tier-2 and tier-3 markets, where the ticket size for most of the lending is less than Rs 10 lakh.
There are very few companies which are actively participating in this segment. The latest RBI guidelines give priority for housing loans of up to Rs 10 lakh.
So for indirect lending by banks, we would probably become one of the big beneficiaries to get long-term financing for onward lending activities. Whatever we borrow from banks, that is, up to Rs 10 lakh, will be categorised as priority sector lending. And, today, banks are falling short in meeting their priority sector lending targets.
Public sector banks have significant presence in rural and semi-urban areas, how do you plan to counter competition from this segment?
One thing is clear. We are a focussed housing finance company. Banks have many other products to offer and targets to achieve. Whereas, for us, the focus area is just housing finance. And to supplement that you have such a huge demand for housing that a few banks actively participating in the market is not going to leave the other housing finance companies high and dry.
What is also important is the customer service element. Being in the private space we have been able to offer good service to our customers on the ground. For example, our turnaround time (that is, the time taken between sanctioning and disbursing of a loan) is fairly quick.
We are able to sanction a loan, especially in tier-2 and tier-3 markets, in a week’s time. And with integrated loan management systems we are able to disburse the loan in 48 hours flat.
You have tied up with United Bank of India, Punjab and Sind Bank, YES Bank, and so on, for originating housing loans. How does this model work?
It is a syndication model where banks also participate. They open their branch network to us. Jointly we source a lot of business from the branches. The banks have risk-participation strategies in place.
For example, for a Rs 10-lakh loan they will contribute Rs 5 lakh and we another Rs 5 lakh. If 10 loans are generated, five loans will be in their account and five in our.
Banks cannot focus only on a single lending product, so tying up with someone like us whose core focus area is housing finance helps.
How much of the origination happens through this channel?
We are looking at 5-7 per cent of whatever we lend currently. The idea is to enhance this and take it up to 10-15 per cent.
Is there any risk due to high exposure to the self-employed segment? How is the quality of Dewan’s loan book?
There is a perception that credit risk is more in the self-employed segment. And, unfortunately, this perception continues to dog the segment. Our experience has been fairly good, and it is probably one of the best segments we have in our books.
How was the performance of recently-acquired First Blue Home Finance?
First Blue Home has also done fairly well. For the first half of the current year, the loan disbursements were about Rs 1,063 crore. Current loan book outstanding of First Blue is Rs 6,211 crore. We are not seeing slippages at all. The gross NPA (non-performing asset) is very low and net NPA is zero.
But what about the margins? They are lower than Dewan Housing’s?
Housing finance is a business which doesn’t give you very high margins, unlike other asset financing NBFCs. We are fairly happy with a close to 3 per cent margin. Margins have been inching up, which is a positive. RoE (return on equity) is 18.5-19 per cent, very similar to Dewan Housing’s.
When do you plan to merge it with Dewan Housing?
The only approval pending is that of the Delhi High Court. We expect the court’s approval to come through in January. We are already ready with the consolidation plan.
Will you pursue any other acquisition opportunities in the housing finance space?
We already have four housing finance company licences in operation. We are quite happy with our position in the market and we don’t think there are too many housing finance companies that offer an opportunity for us to consider right now.