The global economy continues to recover backed by ongoing policy
support and improving financial market conditions. The recovery
process is led by Emerging Market Economies (EMEs), especially those in
Asia, as growth remains weak in advanced economies. The global economy
continues to face several challenges such as high levels of
unemployment, which are close to 10 percent in the US and the Euro
area. Despite signs of renewed activity in manufacturing and initial
improvement in retail sales, the prospects of economic recovery in
Europe are clouded by the acute fiscal strains in some countries. Core
measures of inflation in major advanced economies are still moderating
as the output gap persists and unemployment remains high.
The Reserve Bank of India had projected the real GDP growth for 2009-10
at 7.5 percent. The advanced estimates released by the Central
Statistical Organisation (CSO) in early February, 2010 placed the real
GDP growth during 2009-10 at 7.2 percent. The final real GDP growth
for 2009-10 may settle between 7.2 and 7.5 percent.
The uptrend in industrial activity continues. The index of industrial
production (IIP) recorded a growth of 17.6 percent in December
2009,16.7 percent in January 2010 and 15.1 percent in February 2010.
The recovery has also become more broad- based with 14 out of 17
industry groups recording accelerated growth during April 2009 -
February 2010. The sharp pick- up in the growth of the capital goods
sector, in double digits since September 2009, points to the revival of
investment activity. After a continuous decline for eleven months,
imports expanded by 2.6 percent in November 2009, 32.4 percent in
December 2009, 35.5 percent in January 2010 and 66.4 percent in
February 2010. The acceleration in non-oil imports since November 2009
further evidences recovery in domestic demand. After contracting for
twelve straight months, exports have turned around since October 2009
reflecting revival of external demand.
Various lead indicators of service sector activity also suggest
increased economic activity. On the whole, the economic recovery, which
began around the second quarter of 2009-10, has since shown sustained
(source: RBIs monetary policy statement for the year 2010-11)
Indian Housing Finance scenario:
The decrease in property prices and uncertainty over growth in income
levels, on the back of economic slowdown in the second half of the
previous year led to some slackness in housing finance disbursements in
the year 2008-09. However, with the gradual recovery in economic
conditions, the demand for housing finance improved in 2009-10.
Further, reduction in the interest rates during the second half of
2009-10 also pepped up demand for housing finance.
Over the last few years, the share of housing finance companies (HFC)
has been increasing in the housing finance segment, mainly due to their
cautious approach in credit underwriting, perception of better customer
service, and increasing focus on urban centres which have higher
average ticket size. The HFCs are expected to further raise their share
in total disbursements, despite the introduction of teaser loan rates
by banks. HFCs too have reduced interest rates to meet competitive
pressures from banks. The launch of lower interest rate schemes on home
loans by public sector banks has led other private banks and HFCs to
follow suit. Hence, yields are estimated to have fallen by around 50
basis points in 2009-10. At the same time, cost of funds has also
reduced because of abundant liquidity in the system. As a result, gross
spreads and net margins across player groups are expected to fall by 15
- 20 basis points in the current financial year.
CRISIL Research has observed that the asset quality of banks in the
housing finance segment has been deteriorating significantly in the
past 2-3 years, as against HFCs, who have been able to maintain their
asset quality. During 2003-04 to 2007-08, the banking sector,
especially private sector banks, had aggressively increased home loan
lending by adopting higher loan to value ratio and instalment to income
ratio thereby allowing customers to borrow more than their repayment
capacity based on their income level, which resulted in higher NPA in
the said segment.
Due to the recent downturn, these weak loans began to show up in terms
of poor asset quality as the borrowers were not able to pay their
monthly instalments. In addition to the dilution of underwriting
standards, seasoning of the portfolio after a period of rapid growth
had played an important role in increasing the level of banks NPAs.
Hence, gross NPAs of banks in the housing loan segment increased
significantly during 2007-08 and 2008-09.
Banks have already started tightening their credit standards, and their
NPA levels are expected to witness moderation as the proportion of
fresh loans generated with tighter underwriting standards gradually
increases. On the other hand, HFCs have been cautious in their credit
approach by adopting lower loan to value ratio and instalment to income
ratio, resulting in considerable lower NPA levels.
LIC Housings stride in progress:
Interest income from housing loans increased 19.47 percent from
Rs.2,747.65 crore in 2008-09 to Rs.3,282.66 crore in 2009-10.
The net interest income grew by 21.33 percent from Rs.731.04 crore in
2008-09 to Rs.886.94 crore in 2009-10.
Profit after tax surged 24.56 percent from Rs.531.62 crore in 2008-09
to Rs.662.18 crore in 2009-10.
Funds mobilized grew 51.98 percent from Rs.11,188.33 crore in 2008-09
to Rs. 17,004.35 crore in 2009-10.
Sanctions (Ind.+Proj.) increased 65.55 percent from Rs.10,898.47 crore
in 2008-09 to Rs. 18,043.17 crore in 2009-10.
Disbursements (Ind. + Proj.) grew 69.51 percent from Rs.8,762.01 crore
in 2008-09 to Rs. 14,852.92 crore in 2009-10.
Loan portfolio grew 37.58 percent from Rs.27,679.28 crore in 2008-09 to
Rs.38,081.38 crore in 2009-10.
Net interest margin declined by 25 basis points from 2.95 percent in
2008-09 to 2.70 percent in 2009-10.
Return on equity reduced by 425 basis points from 23.80 percent in
2008-09 to 19.55 percent in 2009-10 on account of 65.95 percent growth
in equity holders fund due to increase in capital and retained profit
for the year 2009-10.
Net profit margin improved by 77 basis points from 18.31 percent in
2008-09 to 19.08 percent in 2009-10.
Gross NPA declined by 38 basis points from 1.07 percent in 2008-09 to
0.69 percent in 2009-10.
Net NPA levels declined by 9 basis points from 0.21 percent in 2008-09
to 0.12 percent in 2009-10.
Earning per share grew 17.36 percent from Rs.62.59 in 2008- 09 to
Rs.73.46 in 2009-10.
Book value strengthened from Rs.263.04 in 2008-09 to Rs.356.85 in
It is worth mentioning here that your company through untiring efforts
and proactive action has not only ensured consolidation of the gains
achieved in the past years, but also ensured further growth and
increased profitability. The company would continue its efforts to
reduce NPAs further. Your Company has surpassed all the expectations
and managed to beat the industry growth rate. It is on trails for
achieving still greater heights. It is commendable that even in
difficult, competitive environment, all the employees have teamed up,
performed well extraordinarily and lived upto their commitment for
growth of the company.
LIC Housing Finance Limited has been playing a significant part in the
economic and social life of the country, with its impeccable brand
image and transparent policies and practices. The Company would like to
remain focused on all areas that are likely to impact, favourably, the
customers, the stakeholders, the employees and above all the society.
The Companys vision, values and philosophy has brought us together
this far making this journey extremely rewarding for each one of us.
Our progress lies in our capabilities and commitment to stay on the
course of a challenging strategic path. In this unfolding era of new
opportunities, I look forward to your active support and good wishes to
make the coming year, a year of still greater achievements and success.
T. S. Vijayan
28th April, 2010