MC Interview: Expect 5-10 bps compression in margins in near future, says Home First CEO

Affordable housing lender Home First expects a compression of 5-10 bps in its net interest margin (NIM), said Chief Executive Officer (CEO) Manoj Vishwanathan, citing incomplete transmission of rates to customers. He said that the company has already seen a compression of around 30-40 bps.

In an interview with Moneycontrol, Vishwanathan said they expect to expand the network to around 130 branches by the end of FY 2023-24 from the current 110. On competition with small finance banks (SFBs), he said that SFBs have different cost of borrowing compared to housing finance companies (HFCs) and hence, there is no stress on the competition front. Edited excerpts:

This is something that we have always been working on, to diversify our borrowing profile. Banks continue to be the largest lenders, and more than 50 percent of our borrowings are from banks. The balance is from other sources, and we keep on diversifying.

We continue to raise funds through the sale of the book through direct assignment. And of course, we have a decent ratio coming from the National Housing Bank (NHB) through refinance.

Currently, we have two partnerships in place, one with the Union Bank of India and another with the Central Bank of India and they are going very well. And we are growing at a good pace, and we are happy with how our relationships are turning out.

Our cost of borrowing has gone up over the last 18 months and NIMs have compressed slightly. Around 30-40 basis points of NIM compression has taken place. And from here on probably, the compression should be lesser, but maybe another 5-10 basis points is what we are expecting because still some transmission of borrowing costs is left.

Now that we have got the licence, we will be discussing with the insurance companies on what commission they can pass on according to the product. And on this, they are also deciding on the commission levels and so on. So maybe in a few months’ time we'll be able to start earning commission on whatever we are already selling through the group.

At least for the next one or two years, we are not looking at growing through our insurance business through the corporate license aggressively.

SFBs have been doing affordable housing for some time. But SFBs' cost of borrowing will be different from ours and in that sense, they will not be able to compete on our price. And as far as processes and turnarounds etc are concerned, we are quite ahead of everyone else. So we’re not worried about the competition.

We are looking to expand into two large states, Uttar Pradesh and Madhya Pradesh. We're looking to expand there in a big way in the coming years as we find these states to have the potential to become large, affordable housing markets.