Housing finance companies will benefit from the central bank’s move to deepen the bond market which will result in lowering their cost of funds. One of the likely beneficiaries of the move Can Fin Homes expects a cost advantage due to the move.
Additional 5 percent allowed for funds to invest in housing finance companies in the paper will see demand from bond market, SK Hota, Managing Director of Can Fin Homes told CNBC-TV18. There’ll be a cost advantange to companies like ours, he said, adding, that he expects liquidity to increase which will help faster growth in loan book.
Hota acknowledged that competition in the industry has increased but was quick to say that there is no threat from peers on the ground level as Can Fin Homes caters to a niche segment of salaried class customers in middle and lower income segment.
The company saw a 29 percent on-year loan growth in FY16. Hota said the company’s growth rate has stabilised at 28-30 percent since its inception in 2011-12 and he expects the company to maintain the growth rate going ahead.
Below is the verbatim transcript of SK Hota's interview to Prashant Nair and Reema Tendulkar on CNBC-TV18.Prashant: Is the opening up of the bond market for housing finance companies a boost in terms of lowering cost of funds?A: As far as this additional 5 percent that has been allowed now for the debt funds to invest in our papers in the Housing Finance Companies (HFCs), certainly there will be some deepening of the bond market and the minimum criteria what they have put is it should be AA rated, that way good for the HFCs companies like Can Fin which is AAA rated, certainly there will be some cost advantage should be there. If not at least the liquidity increases, we should be in a position to pass on the benefit either in terms of increasing the loan book faster or for that matter to pass on to the borrowers in terms of fighting the competition.Reema: Coming back to the growth, in the initial period the growth wasn’t too much, but in the last few years, we have seen your book grow at a rate of 40-45 percent. What’s your strategy on growth going ahead, will this momentum continue?A: If you see my last year’s growth it was something like 29 percent and the initial years when we are growing in 2011-12 onwards we opened up, we expanded the our branch network. We are having something like 41-42 branches in 2011 and now we have grown to 120 branches and 50 satellite offices. This new expansion has somewhere added in terms of the growth that you are referring to. The compound annual growth rate (CAGR) for last 4-5 years is something like 44 percent for last 5 years, but if you see the growth rate we have stabilised somewhere around 28-30 percent and we are continuing to maintain those rates. Prashant: Incrementally, what is your strategy plan on increasing the loans against property that side of the book?A: One thing is the non-housing part and another thing is loan against property (LAP), because my housing segment is something like 88 percent, because Can Fin is not that deep into LAP. Out of the 12 percent non-housing less than half is LAP, the remaining is like loan for commercial properties for the rent receivables, personal loans these things.The pure LAP where it comes to the mortgage loan essentially some inherent risk are there, so loan-to-value (LTV) as well as the incremental risk premium we load on the interest rates, I suppose that should take care, but this is a segment where many of the HFCs in the industry they are in now and this is a growing segment. For us deliberately we have kept it low.Reema: What is the kind of opportunity in the affordable housing segment, have we see a meaningful pickup?A: That is the segment I am talking about where my average ticket size is something like Rs 17.5-18 lakh as far as the housing is concerned. This is a segment where the demand will remain and majority of our countrymen they belong to these segments, the middle and lower middle income and the LIG segment. Even though we are not into the very low level of houses, there is the economically weaker segment (EWS) not much into that, but still this is a segment where the government plan there will be something like 6 crore houses required before 2022 that is some 2 crore in urban and 4 crore in rural.
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