Home First Finance aims to raise Rs 2,000 crore in FY23, targets 30 percent AUM growth, says MD Manoj Viswanathan

Home First Finance is betting that the worst of COVID-19-related disruptions is over for the company and it has geared up for the recovery in housing demand recovery in India. The Mumbai-based housing financier, which debuted on the stock exchanges in February 2021, had Rs 5,380 crore of assets under management (AUM) in March. It has 80 branches across 13 states and Union Territories across India.

In an exclusive interview with Moneycontrol, managing director Manoj Viswanathan said the company aims to grow its AUM by 30 percent by March 2023 and plans to raise Rs 2,000 crore to be mainly used for lending. He said the HDFC-HDFC Bank merger could lead to smaller housing financiers merging with larger entities. Edited excerpts:

We endorse the view that (housing) demand is very strong on the ground. We had spoken about the correlation between rising incomes and demand for housing. We had mapped the journey of the US and China on the same metric in which we assessed that demand for housing increases as per capita income rises. This is a similar situation playing out here, where incomes are going up and the economy is improving. The states in which we have a strong presence, that is Gujarat and Maharashtra, are contributors to the country’s exports.

All of this is contributing to a strong housing demand on the ground. Today, a large asset which people want to purchase is a house and that trend is working in our favour. COVID has also been a nudge because that has instilled the need for security or investment in terms of a new house. All of these have contributed to a strong demand scenario and that has contributed even in our business.

Rising interest rates will be a slight dampener to this whole housing demand revival. But so far, we have seen that the rise in rates is gradual and not a sharp, sudden increase. So, to that extent, it should not impact demand for housing that much. Small increases in interest rates will not deter buyers so much. In a worst-case scenario, borrowers may have to go for a smaller house or take up the interest rate burden in terms of higher equated monthly instalments. If the interest rate goes up by 50 basis points, borrowers’ instalment will go up by Rs 500 per month in our segment. They will probably absorb this by contributing more or by going for a smaller house, and they will calibrate their payments accordingly. Hopefully, this will not be a permanent situation.

The best-case scenario is demand for housing not getting hampered in the affordable segment because this is genuine end-user demand.

We have been continuously guiding for 30 percent AUM growth for FY23 and that is where we want to be.

Our gross stage 3 (bad) loans stand at 2.3 percent, post the Reserve Bank of India’s non-performing asset (NPA) classification norms. Pre-classification, this number was 1.3 percent. The 1 percent increase that you are seeing is from customers who were impacted by COVID and struggled to make payments. We are almost close to bringing our NPA levels to pre-COVID levels. The journey towards 1.3 percent or 1 percent (in gross NPA levels) will be a fairly quick one. In the next couple of quarters, we should be there.

We have got the approval from the board to raise Rs 500 crore through bonds. This is because we are an AA-rated company and we are required to raise a certain percentage of our domestic borrowings via non-convertible debentures. For the full financial year, our fundraising target is approximately Rs 2,000 crore. For us, the fundraise is for lending to customers, we do not have any huge capital expenditure at this point.

Branch expansion is on track. We have identified certain geographies and we are planning on expanding there. At this point, we are focusing on the southern states and plan on expanding over there. We have a plan on where we want to deepen our presence and we are acting on that. As a long-term strategy, we are looking at expanding our presence from the current 200 towns to about 400 towns in the next two-to-three years.

Housing finance was always a well-regulated business. The RBI’s new norms are not a big issue. We will keep implementing whatever changes the RBI wants us to do. On the positive side, it will also give us more credibility to lend. If the regulations are tightened and are more like a bank, it will further strengthen our existing controls and hopefully, give us more credibility when we have to go in for our own fund requirements. So, we are seeing it in a positive way.

Home First Finance falls in the middle layer under the RBI’s classification. Whatever the RBI has asked us to comply with at this point in time has already been done.

There is a lot of discussion already on the HDFC-HDFC Bank merger. I think there were totally different considerations they had on the merger. So, I think the market for housing finance is very large and housing finance companies play a large role in expanding that segment and serving the customers. I would say there may be consolidation in smaller players who would want to merge with larger entities. But I would say there is a larger opportunity for independent housing finance companies.

We are not looking at anything inorganic at this point in time. We will largely be looking at organic expansion.