To enable housing finance companies compete more effectively with banks on the interest rate front, they should be allowed to access demand deposits from large investors such as companies and high net worth individuals, according to Kapil Wadhawan, Chairman and Managing Director, Dewan Housing Finance Corporation.

Housing finance companies (HFCs) have a long-standing track record of servicing retail term deposits of over one year. So, there is no reason why they will not be able to service demand (savings/current account) deposits of large investors, he said.

Wadhawan observed that building societies in the UK not only provide home loans but also take savings deposits.

Housing finance industry experts are of the opinion that if the regulators (Reserve Bank of India and National Housing Bank) allow HFCs to take demand deposits from large investors, there may not be a need to tweak the extant guidelines for maintaining the statutory liquidity ratio (SLR).

SLR is the portion of public deposits that an HFC has to necessarily invest in government securities. Currently, the SLR requirement for HFCs is 12.50 per cent of the public deposits. For banks, the SLR is at 20 per cent of their net demand and time deposits.

The demand for being allowed to tap demand deposits comes in the context of the cost of funds of HFCs being much higher than that of banks. For example, as of March-end 2017, DHFL’s cost of funds was 8.83 per cent while for State Bank of India it was 5.88 per cent.

HFCs’ fund sources include line of credit from banks and financial institutions, capital market instruments (non-convertible debentures, private placement of subordinated debt and perpetual debt instrument, and commercial paper), fixed deposits (of over one year duration), re-finance from National Housing Bank and External Commercial Borrowings. The DHFL honcho said: “You look at a co-operative bank’s asset class and you look at our asset class. There is a stark difference (when it comes to non-performing assets).”

So, when co-operative banks are allowed to accept deposits, then HFCs too should be allowed to mop up savings deposits, albeit from large investors, he added.

Not easy to build

To a query whether DHFL will consider applying for a banking licence, Wadhawan said: “I think we are pretty comfortable with what we are doing currently. We do accept deposits. It is not easy to build a bank from scratch. It takes time.

In banking, he said there is strong regulatory direction on the kind of assets an entity can create and garnering deposits/ savings etc from the market is not easy. “It is not easy to build that (banking) franchise. And more importantly you have to have a brand. So, I think, we as a housing finance company are today at the forefront of providing value-adds to our customers even without being a bank,” he said.

“We do offer SME (small and medium enterprise) loans. We do offer housing loans. And these are at as competitive rates as you can get in the marketplace, from even the banking system. So, we believe that this (housing finance) is a focused business and it is important to stay focused. We are building our book in the process…. So, yes, at the opportune time we will approach the RBI with our request (for a bank licence).”

Wadhawan said by the end of the current financial year, DHFL would cross ₹1 lakh crore of assets under management, which as of June-end 2017 stood at ₹88,236 crore.

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