The company is deploying a hub-and-spoke model for its sourcing and underwriting business.
The company is deploying a hub-and-spoke model for its sourcing and underwriting business. Over the next three years, management plans to open 24 branches, with a 50:50 split between Tier I and Tier II/III cities. While the split of branches will be equal, we expect AUM to be skewed toward Tier I locations, as a) the company has existing builder loan projects at Tier I locations and b) volumes and ticket sizes are expected to be higher. PIEL has opened one branch by now (in Mumbai), and would open another one in Thane shortly. In the initial stages, it will enter more of Tier I markets and then move on to Tier II/III markets. PIEL will cater to the affordable housing segment too — management is confident that affordable housing supply will pick up in a big way. Land prices in the outskirts of some cities have declined too, strengthening the affordable housing push.
Over the medium term, management expects the share of retail and non-retail loans to be 80:20. Within the retail segment, home loans will account for 80-85 % of the loan book, and LAP for the rest. Construction finance loans in this segment will be of a smaller ticket size compared to those in the wholesale lending book. While the front-end sales team will be different from the one in wholesale lending, the back-end team will be the same. PIEL will cater to both salaried and self-employed segments, with a higher share of self-employed customers. Within LAP, the focus will be on residential properties.
PIEL’s loan sourcing is expected to come from several avenues, such as a) ‘B2B2C’ – offering loans to home buyers of projects financed by PIEL, b) leveraging Brickex, a B2B aggregation platform launched by PIEL, which has over 10,000 distributors across Tier I cities, and c) DSAs. With the B2B2C model, the company is off to a good start and has already built AUM of `2bn, with customers coming from 30 residential projects that it has funded. Yields for these loans have been close to 9.5%.
Management also spoke about offering home loans with differentiated repayment structures in some cases. This is to assist home buyers in purchasing a slightly bigger property than they would have otherwise bought. The company does not pay the builder any referral commission, however, management acknowledged that this could be a possibility. With Brickex, management stated that sourcing costs are lower than most other DSAs, and more importantly, there is a higher level of customer stickiness.