Three strategies to attain 2.7% NIM: LIC Housing chief

Saikat Das
moneycotrol.com

LIC India promoted LIC Housing Finance (LICHF) has embarked on a three-pronged strategy to attain a net interest margin in the range of 2.5-2.7% in 2012-13.  Net interest margin or the different between interest earned and paid out stood at 2.10% in Q2, FY13 compared with 2.18% in Q1, FY13. According to V K Sharma, the chief executive of the housing finance company, it would reduce the share of bank borrowings by 500 to 25% while slightly increasing its loans to developers that generate better interest margin. 

"The fixed tenure of our duel rate home loan scheme will get over between April, 2012 and June, 2013. After that, borrowers will repay on floating rate basis. This would give us an additional interest rate benefit of around 1%. Currently, we have a portfolio of Rs 12,500 crore on this account. Hence, it will also support our NIM," he told moneycontrol.com in an exclusive interaction after announcing the July-September quarterly numbers.

The lender had launched duel rate scheme two-three years back. Here, a borrower has to repay loans at a fixed rate in the initial three years and later the repayment will be converted into floating rate. The current rate differential between fixed and floating is roughly at 1%.

Fund raising

LICHF is currently raising money through different sources like bank loans, non-convertible debentures, promoter's funding, credit from the National Housing Bank and others. The share of bank loans remained at around 30% of the total borrowing book at Rs 62,000 crore.

"Right now, we are raising resources from the biggest bank paying interest rates in the range of 10.50-10.75%. However, NCD coupon rates have fallen to 9.15-9.25%. We are planning to mop up more funds through by issuing NCDs rather than seeking credit from banks. We have headroom to collect Rs 15,000 crore via debt issues in the next two quarters," Sharma said.

India's second largest housing finance company will also sell around 4.6 crore shares through qualified institutional placement (QIP), to be finalized in the next two/three months. 

Also read: LIC Housing Fin net up 147% to Rs 243 on lower provisions

Loans to developers & rate cut

The ratio between individual and developers loan currently stood at 97:03. Retail loans are growing at pace of 20% year-on-year. Simultaneously, the lender is also keen in expanding credit to builders but in a cautious manner (to maintain asset quality). This form of loans gives better yields.

For example, a real estate developer gets a loan priced at the prime lending rate (at 14.9% for LICHF) plus spread of 1-2%. This is higher than the rate of home loans available at 10.40% upto Rs 30 lakh and 10.70% above Rs 30 lakh. The difference is palpable between two segments in terms of interest income. However, the focus on loans to home buyers will continue despite marginal rise in the builder's segment.

"We aim to disburse Rs 3,000 crore developer's loan in FY13 of which we have managed to disburse only Rs 420 crore due to seasonal variation in the first half. We will deliberate over rate cut only when our borrowing costs come down by 25 bps. At present, the average borrowing cost is at around 9.85%," the chief executive concluded.

saikat.das@network18online.com