In a fillip to middle-income families in search of their dream home, the Ministry of Housing and Urban Development has set the ball rolling on the credit-linked subsidy scheme, or CLSS for middle-class families.
Under the new CLSS (MIG) scheme, middle-income groups who have an annual income of Rs 6 lakh and upto Rs 18 lakh per annum will be eligible for interest subsidy on housing loans. It will also include those whose loan applications are underway and those whose loans have been approved since January 1, 2017.
In an interview to CNBC-TV18, Gagan Banga, VC & MD of Indiabulls Housing Finance said the good thing about CLSS is that there is no cap on the value of the house. However, the scheme is targeted towards loans between Rs 20 lakh and Rs 30 lakh.
The Prime Minister had earlier announced an interest subsidy of 4 percent on housing loans of up to Rs 9 lakh for those earning up to Rs 12 lakh per year and a subsidy of 3 percent on housing loans of up to Rs 12 lakh for those earning up to Rs18 lakh per year.
Below is the transcript of the interview.
Latha: The details are now out; you get a 6.5 percent subvention which is the existing scheme. For the new schemes, if you are going to buy an Rs 9 lakh house, 4 percent of the interest will be paid by the government and if it is an Rs 12-18 lakh home, then 3 percent gets paid by the government. What is the operational procedure, by when does this kick-off, when can you send your first file; I assume National Housing Bank (NHB) has to sign off on it?
A: Just to clarify, the good thing about the revised Credit Linked Subsidy Scheme (CLSS) is that there is no cap on the value of the house. The only two caps that they have put is on the size of the house being at 1,100 square foot which basically covers carpet area, which basically covers almost everything which falls under mass housing and especially given whatever Indiabulls does, and also an income cap of Rs 18 lakh per annum which again covers almost all of the customers that Indiabulls or most large housing finance companies would be catering to. So, it is a scheme which is well targeted towards home loan borrowers who would be typically taking loans of Rs 20-30 lakh. So, anybody who is borrowing between Rs 20-30 lakh will get a large advantage out of this.
If the loan runs for say for 15 years for a loan of Rs 25 lakh, this subsidy along with the Rs 2.5 lakh plus Rs 1.5 lakh on principal interest tax waiver that the government anyways gives, the cost today of taking a home loan is down to 0.50 percent. So, that is how significant this move is and it is not restricted to the economically weaker section, it is bang in the middle of what housing finance companies or for that matter most banks are also doing. So, roughly my estimate is that approximately Rs 15,000 crore of home loans get given out per month.
Latha: I take your point, Rs 18 lakh would be aspirational in the 20-30 year band of young people who want to buy homes, but I wanted to know the procedure. When that old Rs 3-6 lakh scheme was in place, you had to get things vetted by NHB’s, isn't it? How long does it take before -- say my son applies for the home loan and it gets cleared, is it an easy process?
A: It is a very easy process and NHB as a subsidy provider or a subsidy financier is extremely efficient. Within about three weeks of us raising a claim on NHB with due details and the due details are extremely standardised, we actually receive the funds and then we are supposed to immediately give credit to the borrower. So, it is roughly a two month process between the actual sanction and disbursement beginning and the subsidy hitting the bank account of the borrower.
Anuj: I just want to talk about the current quarter as well because I was reading a couple of reports that in some cities, the house registrations have been at multi-quarter highs. Is that translating into business as well for you?
A: All through the process of demonetisation, we have been maintaining that the big win out of demonetisation is going to be a large part of the money is coming and hitting the banking system and effectively reducing the borrowing costs for the borrower in due course of time. All of that has played out extremely well. Between the start of the demonetisation process to today, interest rates for home loan borrowers on a gross basis are down by 65-70 basis points. On top of that, you have all of these schemes kicking in.
This is resulting in business being higher than even October by between 15 and 30 percent for most mortgaged lenders including Indiabulls Housing. When we talk to developers especially in the mass housing space, they are also registering as much as a 30 percent increase in footfalls even compared to October which this time was the festival month. So, generally, home lending and most retail lending is seasonal and cyclical and Q4 tends to be the extremely busy quarter and this time as well Q4 is turning out to be as busy as one had projected it to be.
Latha: I interrupted you when you were speaking about the Rs 15,000 crore housing market you say will open up. For the housing finance sector itself, what is the kind of numbers you are looking at in FY18 for instance?
A: What I was trying to say was that housing mortgage industry today is roughly Rs 15,000-18,000 crore on a monthly basis and as per our estimates, the customers who get covered under this scheme would be as large as 10,000-12,000 crore of customers, could start getting benefits out of the revised CLSS. So, that is how meaningful this entire proposition is.
However, my sense is that mortgage industry which has been compounding at 17-18 percent would start compounding north of 20 percent starting FY18 and that could act as the big trigger that the GDP was looking for and this would have an impact on labour, steel, cement, etc. So, that whole positive cycle can get kick-started because of the momentum that the housing industry provide.
Anuj: Indiabulls Housing Finance is now going to be a Nifty company going forward, so, expectations go up naturally. What are your thoughts on what kind of return on equity (RoE) Indiabulls Housing Finance will be able to deliver going forward?
A: Our guidance across financial parameters has been that across book growth, profits, and net interest income (NII), etc. we will continue to compound between 20 and 25 percent. Sometime last year we had increased the book growth projection to between 25 and 30 percent. So, we continue to stick to our guidance. We are already at approximately 26 percent RoE and the target communicated to stakeholders is that we will try and increase that by a 100-basis points every year and get to 30-31 percent till about 2020-2021. So we are firmly on that trajectory and fortunately we have all the building blocks that are required to be able to continue to grow towards 30 percent type of return on equity from the current 26 percent following a profit compounding of between 20 and 25 percent and a book compounding of between 25 and 30 percent.We are sitting on roughly 23.5 percent capital adequacy. We are at the highest credit rating, so whatever are the building blocks required to be able to achieve this growth between now and 2020, we are well in place. The good thing is that now the macro has turned more favourable for housing than it has ever been in the last 70 years and that enables us to look at our business in a more optimistic manner. So, come the next financial year, we will come back to you with revised guidance.