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Muthoot group forays into home loans for low income group

Published on Tue, Mar 29, 2011 at 18:29 | Source : Moneycontrol.com

Updated at Wed, Mar 30, 2011 at 16:58

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The 20,000 crore Muthoot Pappachan Group (MPG) on Tuesday said it was getting into the home loan business, with a focus on low income clientele. Muthoot Housing Finance will operate as a 100% subsidiary of Muthoot Fincorp, a non-banking finance company (NBFC) of the Kerala-based group.

"We aim to disburse around 125-150 crore in 18 months time through this HFC," Maneesh Srivastava, CEO, Muthoot Housing Finance told moneycontrol.com.

He said the loan size would be between Rs 3-10 lakh with a maximum repayment period of 15 years. The company is looking at customers with a monthly income between Rs 10,000-30,000.

"Initially, promoters will invest Rs 100 crore. Later we will keep raising funds from banks and multilateral financial organisations," Srivastava said.

The company is confident that it will find many takers for its home loans from the existing customer base of the group. The Muthoot Pappachan Group has interests in financial services-primarily gold loans--hospitality, IT infrastructure, property, automotive and renewable energy.

For a company catering to the middle income group, Muthoot Housing Finance will charge a higher interest rate of 14-15% compared to 11-12% being charged by banks.

This means that customers of MHF will be mostly those who find it difficult to get loans at banks.

Thomas Muthoot, executive director, Muthoot Pappachan Group said the company was aiming for a net interest margin (NIM) of 3%. NIM is the spread between the lending rate and cost of borrowings.

To begin with, it will open 25 branches in the suburban areas of Ahemdabad, Bangalore, Chennai and Mumbai.

"There is always high demand for low cost homes in the distant suburban areas of metro cities due to large scale migration from rural India," said Srivastava citing that Boisar, a distant suburb of Mumbai, may be a place to do business of low cost housing loans. The company is in talks with Tata Housing and other developers of low cost housing projects.