"We are clear that there are six states we want to dominate – AP (Andhra Pradesh)-Telangana, Tamil Nadu, Karnataka, Rajasthan, Madhya Pradesh and Chhattisgarh in the affordable housing space. In NCR (National Capital Region), Mumbai, Maharashtra and Gujarat, we’ll dominate in the mid-segment," he said.
The growth in the home loan market is being driven by the post-Covid realisation of the need to own homes and it will sustain, Ravi Subramanian, MD & CEO, Shriram Housing Finance, tells Shritama Bose. The company’s portfolio in the 30-90-days past due (dpd) segment has dropped to 4.9% from 8% two years ago, he adds. Excerpts:
Do you see the pick-up in the home loan market in the second half of 2020 sustaining?
If you look at the kind of transactions that have happened not just in Mumbai and Delhi, but across the country, it augurs well for the industry. Whether it is a pent-up demand being fulfilled now or people are genuinely going after buying houses and securing their future, time will tell. Based on the kind of transactions we’ve been funding – first-time home purchases rather than second or third ones by speculators – we see a distinct change in the approach to a house. Today, a house has become a combination of a home and an office. So, the trend we have seen in this market is that people are building an additional room, so our self-construction loans are going up. People are trying to upgrade from a 1BHK to a 2BHK and from a 2BHK to a 3BHK. So transactions are going up. Our assessment is that because of Covid and the inherent issues which Covid raised, people have started seeing the need for having a house. So, yes, it’s a trend which I see sustaining, particularly for small and medium-ticket home loans.
We are now in a hypercompetitive environment where banks are bringing home loan rates down. Your rates start at 8.9%. How are you ensuring portfolio quality in such a scenario?
The market itself is large enough for multiple players to survive at the same time. But, more important than that is the fact that there are multiple segments, including those which don’t interest large banks or some public sector banks. For them to apply their underwriting practices and policies to the self-employed segment in the Rs 10-15-lakh range of ticket size is very difficult and expensive. They will never be able to operate in that space. Self-employed people, particularly small and mid-sized self-employed, are never touched by banks. Having said that, that is the reason banks’ home loan business runs at 0.5-0.6% RoE (return on equity), whereas mine runs at 2.5% RoE. The other point is that I work with a lot of new-to-credit customers, while banks don’t touch people who don’t have a credit history.
What is the size of your loan book right now and how much would you like to grow it in FY22?
I ended December 2020 at roughly Rs 3,000 crore. We’ll end March at about Rs 3,600 crore and FY22 will end closer to Rs 6,000 crore. We are hoping to leverage our Shriram group network for this. My distribution points are going to rise to 175 from the current 75. That is planned for the first six months of next year. Secondly, we’ve made a lot of investments in people and distribution over the last six-seven months. Those will all fructify in the coming year. We are focusing on specific geographies. We are clear that there are six states we want to dominate – AP (Andhra Pradesh)-Telangana, Tamil Nadu, Karnataka, Rajasthan, Madhya Pradesh and Chhattisgarh in the affordable housing space. In NCR (National Capital Region), Mumbai, Maharashtra and Gujarat, we’ll dominate in the mid segment.
To what extent has Covid hit your borrowers’ repayment capacity?
My collection efficiencies were back to pre-February 2020 levels in December. My 90-dpd (days past due) has gone up by 18 basis points (bps) from pre-Covid levels. The entire Covid provisioning more than covers for this. I will end up reversing some of it in March. The bounce rates today are lower than February 2020. We changed our entire operational procedures, credit processes, assessment techniques, product policies and diversification strategy in January 2019. We started tracking that portfolio separately from the rest of the book and it is now 65-70% of the total book. On that portfolio of Rs 2,300 crore, I had only two 90-dpd accounts, which add up to Rs 10 lakh.
What do the 30-90-dpd numbers look like?
Our retail 30-90-dpd book is 4.9% and the 1-30-dpd is 3%, as of December 2020. Compared to that, two years ago, the 30-90-dpd was roughly 8%. So it has come down dramatically.