> Client acquisition rate> branch expansion rate
Digital lending platform and footprint will be the enabler:
Reliance Home Finance provides a wide range of solutions like home loans, affordable housing loans, loans against property (LAP) and construction finance. The company has a strong distribution network, through a ‘hub and spoke’ model, across the country, serving over 45,000 client accounts.
The total disbursements by the company stand at `8695 crore (US$ 1.3 billion), a yoy increase of 19%. In FY18, the company had disbursed `14.91 billion across 14,400 cases in affordable housing (growth of 40% yoy) and `23.36 billion across 4700 cases in home loan products (growth of 14% yoy). As much as 75% of its home loan disbursements are made for the self-employed class. The average ticket size of affordable housing loan is about `13 lakh and that of home loans is `61 lakh.
Ravindra Sudhalkar, ED & CEO, shares the geographic spread: “Our portfolio is spread across the country with a focus in the west, which contributes 60% of the portfolio. North and south combined add another one third to the portfolio.”
MEDIUM TERM OUTLOOK
HFCs in India have been able to grow at a faster pace, owing to their focus on segments such as self-employed and affordable housing, which have higher growth potential. Mortgage penetration levels (mortgage loans as a percentage of GDP) in India, is at 9.6% which is significantly lower compared to developed economies. The continued increase in population, lower age of the first-time home owners, rising urbanization and nuclearization have also led to greater demand for individual housing.
Sudhalkar says over the last 5 years (FY12-FY17), the housing credit growth has remained steady despite a tough operating environment. He points out that the Indian housing finance market has grown at a 5-year CAGR of 18% with the pace of growth of HFCs and NBFCs being higher at 21% vis-a-vis 18% for banks.
The interest rates at Reliance Housing Finance has been mirroring the overall market, which at the lowest level was at 8.35% in 2017-18. Says Sudhalkar: “The current interest rate, applicable for home loans and affordable housing loans, is at 8.55%. We have tie-ups with approximately 2500 builders.”
The effective rate of interest is lower because of the tax incentives on home loans for both principal and interest repayment and subsidies under CLSS for EWS, LIG and MIG segments, points out Sudhalkar, adding: “We expect the housing finance sector to grow at a CAGR of 20% over the medium term; however, the sub segment of affordable housing loan will grow upwards of 30%. The growth will be supported by pick-up in primary sales, new launches and a healthy growth in the affordable housing segment and the favorable regulatory environment (post-RERA era).”
EYE ON ASSET QUALITY
Gross NPAs of Reliance Home Finance for the entire portfolio have been stable at 0.8% for the last 4 quarters. GNPAs in home loan and affordable home loans have been slightly better than the portfolio at 0.75%.
Sudhalkar says the company is choosing to grow its business cautiously, keeping an eye on the asset quality. While it remains focused on catering to affordable housing segment, it is consciously sourcing cases above `7.5 lakh, in category B&C cities and more that `10 lakh in category A cities. “The objective is to underwrite those cases where the customer has a credit history to draw an inference from,” says he.
The company grew at a faster pace than the industry, and improved its profits (PBT `272 crore). Its cost-to-income ratio improved to 38% in FY18 vis-à-vis 55% in FY17.
Thecompany intends to explore sales of complementary products like insurance. Says Sudhalkar: “We have submitted an application for registration to act as corporate agents to IRDAI, which will allow us to cross-sell life insurance and general insurance products.”
The company has 54 branches and serves more than 125 locations across the country. It launched 11 new branches, including 4 branches for affordable housing segment, during 2017-18. “We look to take this number to 75 branches which will serve close to 200 locations in the current financial year. However, as we increase our digital footprint we expect more clients to be sourced through our digital lending platform. In the future, the number of branches may not grow in the same proportion as that of our client acquisition rate,” says Sudhalkar.
Ravindra Sudhalkar predicts the sub-segment of affordable housing loan will grow upwards of 30%