The National Housing Bank (NHB) has picked up a 12.5% stake in Mahindra Rural Housing Finance Ltd (MRHFL), a wholly-owned subsidiary of Mahindra & Mahindra Financial Services Ltd (MMFSL). MMFSL has an 87.5% stake in the rural housing finance unit.
S Sridhar, chairman and managing director, NHB, says, ?Given the huge housing shortage in rural areas, we would like to step in and boost the sector by associating with companies such as MRHFL, which has already penetrated the market (with products such as tractors, financing schemes etc) and enjoys a considerable rural customer base.?
Right now the corpus of NHB is Rs 5,000 crore. Ramesh Iyer, managing director, MMFSL, says, ?There are already too many players in the urban market. So we thought of capitalising on the opportunity present in the semi urban and rural market.? According to Sridhar, while the need for houses is high in rural India, only 10% of the total housing loan disbursements actually reach these regions.
In a sense, NHB acts like a traditional venture capital fund. It picks up stakes in these companies for sometime, and after a couple of years of guidance, it dilutes its stake and moves on. Sridhar emphasises, ?We always pick up minority stake in these companies.? In the past, the NHB had picked up a stake in LIC Housing Finance.
Anuj Mehra, CEO, Mahindra Home Finance, says, ?We have started our operations in Maharashtra and Gujarat and have recently travelled down south. We will be present pan India in about two years.? The company can offer a loan of up to Rs 5 lakh for each individual case. The collateral for the loan will be the land and the house.
At present, MRHFL is also borrowing from Vijaya Bank to beef up the total amount at its disposal. V Ravi, CFO, Mahindra Finance, says, ?We will keep a net margin of 5% on interest with our lending rate.? To simplify things for the rural customer, the interest rates are fixed (as against floating). He added, ?We have already disbursed Rs 10 crore worth of loans and the total number of customers is 550. As a major player in the rural market it is confident about repayment of loans with negligible number of defaults.
According to a CRISIL report around 2011 the total housing finance distribution is expected to go up to Rs 2,56,000 crore. Out of this, rural disbursals are expected to be to the tune of Rs 34,000 crore. Mehra believes this figure can go up because much of the market is untapped.
The demand is expected to come from customers with an annual income of Rs 2.8 lakh. It is also expecting that 54% of the loan demand will be for self construction, 6% for home improvement and rest will be for new purchases.