Concerns over asset-liability mismatch after the NBFC crisis, slowing loan growth, and delays in the implementation of RERA in Karnataka have weighed on the stock of Can Fin Homes in recent months. SK Hota, Managing Director, Can Fin Homes, in an exclusive interview with BusinessLine , shares his outlook for the business and industry. Excerpts:
After a robust growth in loans of more than 35 per cent (annually) between FY12 and FY17, Can Fin Homes has witnessed a significant slowdown in growth to 18 per cent in FY18. What has led to this slowdown?
Right after the demonetisation shock, the implementation of RERA, which came into force in July 2017, impacted the growth in our key market, Karnataka.
After RERA came into being in the State, the number of projects registered has been significantly lower than in Maharashtra. This is because in Karnataka, there are many small builders (essentially creating the stock for small home-loan buyers), and RERA has led to some uncertainty within this segment.
Can Fin Homes has been focussing on the salaried home-loan segment, with an average ticket size of ₹18 lakh (₹25-35 lakh in metros and ₹10-15 lakh in upcountry locations).
Hence, the sluggishness in the supply of homes in this segment after RERA, has impacted our loan growth, particularly in Bengaluru. While the overall loan book has grown by 17 per cent Y-o-Y as of September 2018, excluding Karnataka, our loan book has grown by a healthier 23 per cent. The reason is that in these regions, even premier builders have started creating stock of affordable homes.
When do you see growth picking up, particularly in Karnataka?
Over the long run, implementation of RERA will have a favourable impact on the sector. Demonetisation, too, has eliminated the cash component in real estate transactions to a large extent.
The Centre’s Credit Linked Subsidy Scheme (CLSS) is also a big boost. We primarily cater to lower income (LIG) and lower MIG (middle income) segments. Almost 60 per cent of our incremental loans by number goes to LIG, and another 30-35 per cent to MIG 1 (income segments -₹6,00,001 to ₹12 lakh).
We also mitigate our risks by lending primarily to the individual home-loan segment (rather than developer loans). There have been signs of recovery in the first half of the fiscal. There is a huge demand in LIG space, which remains unserved.
We need the small players to come back with RERA-approved affordable projects whose delivery time is much faster.
As per the FY18 annual report, 18 per cent of your total liabilities (including bank and market borrowings) are maturing within 6 months, while only 5 per cent of the assets are in the less-than-6 months bucket. Is this wide mismatch a concern?
These numbers on asset/liability buckets are based on the contractual obligations. For instance, the loan is taken for 20-30 years and, hence, the cash flow schedule is drawn accordingly, which is what is reflected in the annual report. But as per our experience, in realty, such loans have an average 10-12 years tenure, as borrowers tend to prepay.
Hence, the rundown in our loan portfolio is about 17-20 per cent, which brings down the average tenure of our loan portfolio. Also, we enjoy substantial undrawn overdraft facility from banks, including the parent bank, which can be utilised if needed. As of March 2018, the proportion of CPs (commercial papers) in our overall funding mix is about 15 per cent. As a policy, we have made it a point that we will not borrow amounts under CPs that are greater than our one-year cash flows. So, we do not see any liquidity issue for Can Fin Homes.
National Housing Bank (NHB) also recently increased its refinance limit to ₹30,000 crore (from inital limit to sanction ₹24,000 crore). We enjoy some benefit from this facility towards directed lending to affordable housing with 3-3.5 per cent spread (apart from liquidity support under general refinance scheme of NHB). But these sources are limited.
Banks have been pushing lending in the home-loan segment, as opportunities elsewhere have dried up. Will the competition intensify?
Banks have been pursuing opportunities in the home-loan segment as it is capital light. Banks also have the pricing power, given their low cost of funds. Housing finance companies raise funds either from banks, NHBs or the bond market.
Till last year, all finance companies were riding on lower interest rates; but now, with rates on the rise, we have to re-price our loans to sustain our spreads. That said, different players focus on different segments and create a niche for themselves. The pie is very big and there is enough opportunity for everyone. At Can Fin Homes, we focus on primarily salaried, purely retail affordable segment.
Being a niche player in the segment, and given our low operating costs (Cost Income Ratio of 13.75 per cent as of September 2018), it works well for us. Not many banks may pursue opportunities in the low-ticket size segment.