Housing finance company LIC Housing Finance Limited is unlikely to take a cue from the country’s largest lender State Bank of India (SBI), which had recently cut interest rates on its home loan portfolio. However, the high interest rate scenario and challenging economic environment, the non-banking finance company (NBFC) has guided for a strong 20-25% loan growth this fiscal.
VK Sharma, director and chief executive of LIC HF, who took over the reins of the company in late 2010 when it was battling allegations of a loan scam, said the NBFC has now buried its past. The employee morale is high and NBFC is readying itself for what Sharma terms as its ?next phase of growth?. In an interview with Pranav Nambiar, Sharma discusses his vision for the future amongst other industry developments.
Will you follow banks like SBI and Central Bank in cutting home loan rates?
Our cost of funds remains high and it will be difficult for us to cut rates at this juncture. This also had an impact on our margins, which now stands at 2.18%. Around 30% of our funds come from bank borrowings, a majority of the remaining comes from non-convertible debentures and a tiny portion from term deposits. Though the cost of funds has been easing in recent times, it will take maybe another two rounds of rate cuts for us to get into a comfortable position. Also you must understand that unlike the banks you are referring to we do not have a diversified play and we cannot increase focus on one particular area at the expense of another.
How do you see loan growth panning out this fiscal?
We are guiding for a growth of 20-25% loan growth this financial year. In the retail sector, particularly in residential space, the demand for loans is very robust. In some pockets like Mumbai and Hyderabad, there has been some slowdown, but overall demand is strong. The demography of the country is such that the younger generation in the country is driving the demand for housing. In the commercial sector, there has been some pressure as the slowdown has affected this segment. But 96% of our lending is to the retail segment. We are currently in process of building up our capacity for our next phase of growth.
Can you elaborate on this?
We have been a formidable player in the home loan market for sometime. But now we have to build up the capacity to to take it to the next level. We aspire to be the LIC of the housing loan market as we want to be accessible to people across the vast stretches of the country.
Building the organisation from the current asset base of R65,000 crore to over R1 lakh crore in the next two years requires a different orientation. We have been building up capacity through IT, new products, standard operating procedures for developers loan. We are focused in catering to lower to middle class individuals and service class with an average loan size of around R17 lakh. We have created a pan-India presence with a presence in almost all tier-2 and 3 cities, more than 200 branches, and more than 1,500 agents. We have now also gone upto district and taluk level.
We are also boosting our overseas presence by planning to set up representative offices in Singapore and Malaysia. This is in addition to our existing foreign branches in Dubai and Kuwait.
As part of our vision, LIC HF is also looking to diversify its business in other areas.
In which areas are you planning to diversify the business?
We have a subsidiary called LIC HFL Care Homes that runs retirement homes. Our plan is to grow this business substantially going ahead. We currently have a property in Bangalore. We are now in the process of having property in Bhubaneshwar and working on the second phase of development of our Bangalore property. We are also scouting for land in other parts of the country to set up other care homes.
In January this year, we closed a real estate PE fund with a corpus of R400 crore. Despite the turbulent economic conditions banks and financial institutions have invested in the fund. We would look to deploy funds from this fund in viable real estate projects.
We also plan to enter into the banking sector as we see it as a natural transition for us. But we are awaiting the RBI guidelines on new banking licenses.
What are your fund raising plans for this fiscal?
We would require funds for the next phase of growth we have discussed. To start off with we plan to issue some 4.6 crore shares in the next quarter or two for raising funds through the qualified institutional placement (QIP) route. (Around R1,130 crore based on Wednesday closing price on BSE).
