Exclusive: Expect special incentives for low-income housing from Budget 2023, says Shriram Housing MD & CEO Ravi Subramanian

What will be the key drivers of your growth going ahead?

We are today among the top three affordable housing financiers in the country and we are targeting an AUM (assets under management) of over Rs 8,000 crore by FY23-end and will gain a leadership position among AHFC (affordable housing finance company) in the next two years. We are focused on certain key markets and specific consumer segments where we are attaining leadership status. Our objective would be to build on this moat over our competitors.

We have a focused strategy of six key states and will penetrate deep into our geography to ensure we cover every micro market in the states and become a market leader in the states of Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Maharashtra, Gujarat and Rajasthan.

Eighty percent of your customers are self-employed. Going ahead will you focus on other income groups too?

The self-employed segment and the informal economy is a segment that is ignored by most lenders since it requires niche expertise. Creating financial solutions for this segment is a more complex proposition that requires customised underwriting for various small businesses. Less than 15 percent of all lending is targeted towards the self-employed segment. The credit gap in the low-income and self-employed segment for mortgages is wide, with banks staying away from them. Over the years we have been able to capitalise on bridging this gap.  We have honed underwriting abilities specific to consumers running small businesses and will continue to deepen our foothold across the consumers within this segment.

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What are your expectations from the budget for the non-banking financial companies (NBFC) sector?

Housing for All has been among the most significant initiatives driven by the government. We expect the government to continue to build on schemes such as PMAY (Pradhan Mantri Awas Yojana) to emphasise the importance of the same. The rural low-income housing segment with ticket sizes of Rs 8-15 lakh and borrower income of under Rs 3 lakh annually is the segment where the need for adequate housing is acute. To address the demand-supply mismatch in rural housing, we expect some special incentives for customers/builders in this segment. With limited projects catering to consumers here, any benefit from the government’s side would aid in easing concerns on both supply and affordability.

Further, there is also an expectation of a revision in the limits of Section 80C and Section 24 for principal and interest rebates on home loans. With inflation being elevated over the last couple of months, construction cost has increased, and any rationalisation of these limits will help the end consumer.

How has affordable housing helped in the third quarter?

For Q3FY23, we posted a PAT (profit after tax) of Rs 36.4 crore, up 27 percent on-year and for 9MFY23 the PAT has risen by a healthy 73 percent and crossed the Rs 100-crore benchmark. The strong demand for home loans in the affordable housing segment has led to a 30 percent disbursement growth which has helped us grow our AUM by a robust 56 percent. We have crossed the Rs 7000-crore AUM landmark while maintaining strong asset quality.

Our GNPAs (gross non-performing assets) currently stand at 0.62 percent.

Within the last quarter, we have added 15 new branches. The plan is to add 20 more branches and take the total branch count to 145 by the end of the fiscal. Presently, we are the fastest-growing affordable housing finance company with the widest distribution network in South India.

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What is the outlook?

In Q3FY23, our AUM grew by 56 percent year-on-year to Rs 7,178 crore. Our AUM CAGR (compound annual growth rate) has been a robust 53 percent over the last three years, and we expect to maintain this run rate going ahead as well. Our disbursements in the quarter stood at over Rs 1,000 crore. GNPAs dropped by over 87 bps (basis points) year-on-year to 0.62 percent.

Another significant achievement for us was a credit upgrade. Our rating across CRISIL, CARE and India Ratings was upgraded to AA+(stable).

When do you see the company touching the target of Rs 10,000 crore AUM?

We are on track to hit Rs 10,000 crore AUM within FY24. Our AUM growth CAGR is over 50 percent over the last three years which is more than double the industry growth rate of 15-20 percent. Our customer acquisition strategy coupled with investment in digital initiatives and distribution enhancement has led to higher growth. Another key metric in the lending business is also maintaining asset quality as you grow. We have successfully managed to keep our asset quality in check backed by high-touch underwriting, early tracking of default indicators and a strong collection mechanism.

Any target on net interest margins (NIMs)?

On a sequential basis, our NIMs have improved by 40 bps on-quarter to 7.6 percent. Based on our recent credit rating upgrade to AA+ with a stable outlook by CRISIL, CARE and India Ratings, we expect borrowing costs to soften and margins to inch up accordingly.