Expect relaxation of subsidy scheme in affordable housing in Budget 2018: HDFC

Self-employed can be two categories. One can be professional self-employed which could be lawyers, chartered accountants, doctors, engineers and the other could be self-employed as in small shopkeepers or something of that sort, he added.

According to him, the former category is not too much of a concern because the professionals at the end of the day will have the ability to service the loans, it is the second category where there could be some concern.

Sharing his Budget wish-list on the affordable housing segment, he mentioned that there are two ways the government supports housing, one on the supply side and the other on the demand side. If some relaxation in the subsidy scheme is made, it will go a long way benefitting more and more issues.

The government needs to further relax the subsidy scheme especially on the criteria of the owner of any property, said Mistry.

Below is the verbatim transcript of the interview.

Latha: This number looks concerning, doesn’t it?

A: It does. The number does look disconcerting. I am not too sure how accurate these numbers are but if they are accurate, then certainly it is a cause for concern because housing loan NPL should under no circumstances be more than 70-75 basis points.

Sonia: The report also says because of so much competition, the lending standards have been brought down by the industry and there is a higher share of lending to self-employed people. Is that a huge concern now?

A: When you say affordable housing, first of all, the term affordable housing is used in so many different ways. So in the kind of loans that we see in the market, particularly with the bigger players, I don’t see any compromise on quality. If you look at some of the newer entrants and I am not going to name anyone but if you look at some of the newer entrants who are primarily focusing in the loans, which are very small in size, Rs 10 lakh or sub Rs 10 lakh or sub Rs 12 lakh kind of loans, there my sense is that the bulk of the customers would be self-employed.

Self-employed also can be two categories, one can be professional self-employed, which could be lawyers, chartered accountants, doctors, engineers and stuff like that and the other could be self-employed as in small shopkeeper somewhere or something of that sort. The former category is not too much of a concern because the professionals at the end of the day will have the ability to service to loan. It is the second categories where there could be some concern and there with the very small shopkeepers and the very small businessmen, the loan amount could be small and there could be some cause for concern.

Latha: I am just reading out the key sentence of the report, Moody’s said the impact of demonetization, and implementation of goods and services tax (GST) will lead to higher delinquencies in the ABS for loans against property (LAP) to small and medium enterprises. To quote, “Introduction of a GST in July 2017 and the monetization have placed stress on the SME sector”, ICRA’s Assistant Vice President Dipanshu Rustagi said. The report also said auto ABS backed by commercial vehicle loans will remain stable. What is your own experience, do you think that higher quality higher finance companies which have seasoned due diligence will not be affected but newcomers could be?

A: I would believe so. To my mind, I don’t see any impact on asset quality, a couple of basis points, up and down can what happen in a quarter but it should not be more than 2-3 basis points higher or lower in any particular quarter.

Any large growth in NPLs like 1.8 percent or whatever rate is mentioned is certainly a cause for concern but I think to my mind a lot of these NPLs will be because of loans against property, something which traditionally we have been worried about. When you give a LAP, you either give it based on the cash flow that is visible or you give it purely based on property values.

The former is not a concern because there is a cash flow to service the loan. We also do a certain amount of LAP but we do a very limited amount of LAP because we do LAP loans only based on repayment capacity.

So we appraise a LAP loan almost exactly the same way as we appraise the housing loan which means we look at the individual’s ability to service the loan and have the cash flow to keep paying the instalment of the loan but there are also loans in the market where the lenders give money purely based on property value. That is where the risk is. Usually, these loans will be at a much higher interest rate. So you earn a higher interest rate, there is a risk involved in those loans, I am sure the lender recognises that risk but because the interest rate is high, they are willing to accept that risk and that is probably the category where the NPL levels are very high.

Anuj: A lot of companies – yours isn’t the case – while we talk about the book as the percentage of LAP, the profitability, a lot of the 80-90 percent over the last two years is purely on account of LAP.

A: That is right.

Anuj: So how big a risk is that, are they building a bit of a bubble here?

A: We have always been concerned about the kind of LAP loans that have been happening and we have voiced it in one of the annual reports two-three years ago. But till now there is nothing that has happened in the system that has proved us right.

Sonia: There are a lot of expectations this time around from the Budget in the affordable housing segment. What would your own wish-list be?

A: I think the scheme that they have – there are two ways the government supports housing. One is on the supply side, the other is on the demand side. Now on the supply side, there is this infrastructure status given to affordable housing projects, there is 100 percent tax benefit if you are constructing an affordable housing project and so on and so forth.

On the demand side, there are fiscal benefits and then you have the subsidy scheme. So my sense is that some relaxation in the subsidy scheme if made, it will go a long way benefitting more and more individuals. So there are three conditions that need to be satisfied to avail of the subsidy. The first condition was that they should not be an owner of the property at a point of time when you are applying for a loan. The second condition was with regard to the size of the dwelling unit and the third condition is with regards to the income.

The second and third conditions are fine. It is the first condition which usually acts as an impact because most families will tend to own some small property somewhere or the other in the country. It could be ancestral property, family property, whatever it be and by that criteria, they get disqualified from availing to schemes.

So if this condition is removed, a lot more people would be a beneficiary.