Repco Home Fin to focus on middle-income house buyers

Saikat Das
moneycontrol.com

Chennai-based Repco Home Finance (RHF), a subsidiary of a state owned cooperative bank Repco, is looking to raise Rs 270 crotre through a public issues, by selling 25 percent stake. It enjoys a capital adequacy ratio of 16.50 percent as on September 30, 2012 compared with the mandated 12 percent. Loans expanded at a CAGR (Compounded Average Growth Rate) of nearly 44 percent between March 31, 2008 and March 31, 2012. Net profit too grew at a CAGR of 45 percent during the same period.

Also read: Repco Home Finance IPO to open on March 13

So, what's the need to raise further capital?

It is the access to cheap source of funds. The housing finance company (HFC) is currently rated as A+ by rating agency Crisil. Even though it is permitted to raise public deposits, it is unable to do so due to the poor rating. It currently mops up its resources through three means: refinancing facility from National Housing Bank (45%), the regulator for HFCs, term loans from 10 public sector banks (45%) and the rest (around 10%) from its parent – Repco Bank wherein the central government hold 77% stake and the rest is held by four southern state governments.

"Our intention is to diversify our borrowings in future," R Varadarajan, managing director, Repco Home Finance told moneycontrol.com speaking on the sidelines of a conference here in Mumbai.

"We require capital to maintain our pace of growth next three years. Public listing will improve our rating to AA at least. Hence, we will be able to garner public deposits due to higher credibility factor. Similarly, we can issue non-convertible debentures and access other source of funds as well. The parent bank cannot offer cheaper interest rates owing to higher cost of funds at around 9.5-10%. There is untapped potential in the housing market," he said.

Moreover, a cooperative bank cannot give loans with tenure of above seven years while a HFC can extend it up to 15-20 years.

To vie with HDFC and LIC Housing….what is the USP?

The unique selling proposition or USP, according to Varadarajan, is their target audience. Majority of them are non-salaried people ranging from small business owners to traders and so on in the tier II and tier III cities.

"We don't target this high bracket salaried people. Rather, it is middle income group. Our average ticket size is 9 lakh with the average tenure of nine years. Other lenders may find it tough to do the business of credit in our niche segment," he said.

RHF has its presence in all southern states along with West Bengal and Odhisa. They are now planning to expand in Maharashtra and Gujarat. As on September 30, 2012; total loan book stood at about Rs 3,100 crore as against Rs 2,430 crore a year back.

Asset quality and risk mitigation

Lending to people who do not have fixed flow of income is a risk. The HFC's gross non-performing asset (NPA) ratio stood at 2.12% as on September 30, 2012; as against 1.76% a year ago. Most of them are coming from non-salaried section.

"Those are technical NPAs as per NHB norms. An account slips into NPA category if repayment stops for more than 90 days. However, we get recoveries in most of the cases. Since last 12 years our loan losses are minimal at Rs 3.71 crore out of Rs 4,600 crore disbursements," the MD said.

Credit appraisal - a grass root approach

CIBIL credit score is compulsory for all its customers. However, in one third cases RHF does not find it. They may be the first time borrowers. Above all, the field information report is most important to get loan from this lender.

"Our officials will reach customers, sit with them and study their business profiles. All small traders maintain their own books of accounts or it is popularly called kachcha record. Our people go through those, and note down facts like the average turnover of every month,  profit margin. Finally, they estimate the income. We found, that is the most reliable as it comes from the grass root," Varadarajan said.

The company normally conducts loan camps once in three months to get customers. The average turnaround time is 7-9 days for loan sanctioning.

Current shareholding pattern

Repco Bank is currently holding more than 50% while three other private equity investors including Carlyle, Wolfensohn and Creador are holding 24%, 13.33% and 10% approximately. After the public issue, the parent’s shareholding will come down to around 37%.

saikat.das@network18online.com