With its focused approach to the home loan business yielding results, Bank of Baroda is confident of increasing its market share of new home loans to 6%, Ashok Kumar Garg, executive director, tells Shamik Paul. Excerpts:

What’s your outlook for the home loan market in India?

The demand for home loans from genuine home buyers is bound to go up. One of the reasons for this obviously is our population of 130 crores, with more than 60% of the population being less than 35 years of age. We have 29. 4 crore households in the country, and the number of nuclear families is growing. Migration to urban and metro centres is also on the rise. Further, the government has targetted providing houses to all, and plans to construct about 2 crore houses by 2022.

Are tier-II and tier-III cities likely to contribute more to demand?

Demand from tier II and tier III cities is increasing in a big way as many companies, employing a large number of people, have moved there owing to lower operational costs. Our average ticket size is Rs 25-30 lakhs. Many large builders who were into premium homes have now moved to the affordable segment, a trend we are seeing across cities. The share of affordable housing is clearly on the rise.

The housing finance companies are growing fast. How do you plan to stay ahead of competition?

Most of the NBFCs operate in a niche space and offer only one product. As far as our bank is concerned, we are focused on growing our home loan business the way the NBFCs grow their business. There are many reasons for this. First of all, the retail segment is a priority area for us. The home loan product also provides us an opportunity to strengthen the relationship with our customers, an association we can leverage to cross-sell other products. The risk weight is also compatible, it helps to conserve capital and the margins are good. When we talk of the retail business, we follow a product-specific strategy. Home loans are a focus area for us. Growth in this segment in the December quarter was more than 44% y-o-y. Our strong distribution network of more than 5,000 branches places us at an advantage.

We also follow a direct sales team model. Additionally, our 74 specialised outlets that concentrate on home loans and mortgage loans contribute to the business in a big way. They not only generate leads, but also ensure that the turnaround time is reduced. We have centralised the entire loan processing system. We have also started a new loan origination process. It will facilitate sanction and processing of loans online and reduce the turnaround time. We are also one of the first banks to have migrated to Cibil score-based lending. It has helped improve our entire housing loan portfolio, besides providing lower rates to the deserving customer.

What is your growth estimate for this business?

Our focus is on improving the marketshare. For all new home loans being sanctioned, our market share stands at 4% today. We want to take it to 6% by next year. Home loans have been a growth story for the bank and we expect the momentum to be maintained. Among our 7.6-crore customers are multi-national companies and public sector enterprises. We are also looking at them for business augmentation.

What is your outlook on interest rates? Do you see them hardening?

It is too early to make a statement. But if you look at the government bond yield, it is going up, as is the corporate bond yield. The Fed is gradually raising its rate, which is a signal for the market. Inflation too is a bit elevated. All this indicates retail interest rates may harden in months to come. But if you analyse credit augmentation in the past, it has never been deterred by the rate of interest, being basically driven by demand.

Could NPAs rise for your home loan portfolio?

That might be the industry trend, but the quality of Bank of Baroda’s housing loan portfolio has improved ever since we switched to Cibil score-based lending. Also, we have a strong collection mechanism—we have call centres, we have multiple layers for recovery of dues. There has been a clear change in the recovery process. Unlike earlier, we chase customers from day one now. For accounts which have already turned NPA, we have a separate mechanism. And activities at the branch and regional office levels are being closely monitored by the corporate office. That has had a positive impact on asset quality.