22 Aavas Financiers scales up technology investments
The company is targeting expansion of branches to 300 locations in 3 years
Aavas Financiers is a leading housing finance company set up in 2011 in Jaipur to provide loans to low and middle income customers for purchase / construction of new homes and for home improvement. The company’s CEO Sushil Kumar Agarwal has been associated with the company since its incorporation in 2011.
Aavas Financiers focuses on serving the unserved and unreached customers in areas with low credit penetration and huge market opportunity. It is estimated that India required 62.5 million housing units in 2017, out of which 70+% shortage was in semi-urban and rural areas. The market opportunity for home finance companies in urban segment alone in these circumstances is `5.6+ trillion. Agarwal maintains that 99% shortage in homes is in the low income group/economically weaker section segments and Aavas is predominantly catering to the self-employed customers. Its customer base consists of 39% of LIG, 22% of EWS, 26% of MIG and 13% of HIG, he adds.
Since its inception, Aavas Financiers has expanded its operations in Rajasthan, Gujarat, Maharashtra, Haryana, Madhya Pradesh, Uttarakhand and NCR. It caters to the customer segment built on semi-urban and rural distribution framework. Studies indicate that put of the total housing shortage in the country, 70+% shortage is in semi-urban and rural markets. The average mortgage penetration in India is 10%. “With 186 branches in 95 districts across 8 states, we are aiming to expand branches to 300 locations in the next 3 years,” says Agarwal. “Our 134 branches are located in 750 tehsils in towns with population <1 million. We follow contiguous expansion to achieve a target presence of 85% across geographies. Our branch-wise and tehsil-wise presence is Rajasthan (72, 79%), Gujarat (27, 71%), Maharashtra (34,55%) and MP (24,48%),” he adds.
LOAN BOOK GROWTH
Aavas Financiers has a fully in-house sourcing model. It has focused on direct sourcing approach and on granular, retail home loans, and has a positive asset-liability match with no exposure to commercial paper.
“We have been able to achieve 10 times growth in our loan book over the last 4 years, across economic cycles,” says Agarwal, adding, “This high growth is driven by customer acquisition. We have built a loan book of `43.6 billion and 42% of our customers are new to credit. We gain from robust underwriting, robust and comprehensive credit assessment, risk management and collections framework.”
ASSET QUALITY, PROFIT
The company has seen growth in volumes while maintaining asset quality and profitability. It has delivered AUM CAGR (since FY14) of 75% while maintaining asset quality (NPA < 1%). Agarwal emphasizes that the company has been consistently operating at healthy RoTAs (return on total assets) of 2.5-3% across last 16 quarters. It also has access to diversified and costeffective long-term financing, he adds.
Aavas has a loan application scorecard to evaluate risk profiles. It has an in-house legal team overseeing external legal verification. Valuation reports are generated beyond a certain ticket size threshold. Risktesting of files is done by in-house risk containment unit. “We have a streamlined approval process and reduced incidence of error. Our credit infra includes 464 credit managers and disbursement officers; tieups with 160+ legal firms; 42 personnel and tie-ups with 110+ technical agencies and 25 personnel in risk containment unit,” says Agarwal.
The company has a 4-tiered collection architecture with a high focus on early delinquencies. It initiates collection process in a timely fashion and executes real-time tracking of collections. Agarwal says risk of higher opex in the short term is offset by benefits of better ability to price risk effectively resulting in yields of 13.5+% and the company exercises strong control over loan take-overs by other institutions. “We enjoy high collection efficiency and low gross NPA,” says he.
Aavas Financiers has developed a concept of ‘digital inclusion’. Agarwal explains that this means to leverage the power of
technology for the benefit of the un-banked and underbanked. “Our Digital Inclusion has been dramatic in terms of translating into excellence and performance. It has helped delegate decision-making down the line with corresponding responsibility, increasing manpower productivity, quicker loan turnaround time and reducing transaction costs,” says Agarwal.
Digitization of disbursements has made it possible for customers to get disbursals through wire transfers within hours of filing.
The company has invested in cutting-edge data science with the objective to decipher a large volume of data quantities, extend interpretation to execution and generate the highest business returns. “Over the last year, we have strengthened our data science function through recruitment of professionals (statisticians and econometricians), armed with new age tools (SAS, R and Python) for data mining. Between fiscals 2014 and 2018, we invested `150.5 million in information technology systems. As of 31 March 2018, our IT and data science teams comprised 28 and 6 personnel respectively,” says Agarwal.
The company uses an enterprise-wide loan management system, OmniFin, to provide an integrated platform for credit processing, credit management, general ledger and reporting. OmniFin helps automation of loan origination system, credit underwriting process, underwriting rule engine, deviation triggers to minimize human errors and maintaining customer history. Following digitization, collections via POS system and mobile app LOKTRA (geo-tracks collection teams and helps mapping) has helped ease work lives.
TECHNOLOGY & ANALYTICS
Aavas Financiers had deployed technology extensively for analytics in collections. It uses models for bounce prediction and assessment of warning signals. Predictive analytics help it to assess possibility of bounce and to place early interventions. It identifies customer repayment behavior. Impact of all these measures are 54% of cases disbursed in <10 days, minimal manual intervention for report generation and opex reduction over the next 3 years, improved customer retention, high degree of control over balance transfer outward and bounce rate.
The company possessed a sizeable proprietary base of more than 50,000 customers from across more than 150 branches at the close of FY18. Analytics has helped it to profile these customers in a targeted manner, offer tailormade products that suit the diverse requirements and enhance customer delight and giving the same experience to rural and semi urban customer, what tier 1 & 2 customers used to have from large housing finance companies. The company has also developed models to predict customer behavior, scientifically price products, protect customer attrition and proactively launch products.
Sushil Kumar Agarwal claims predictive analytics has helped Aavas Financiers to assess possibility of bounce and to make early interventions