Shriram Housing Finance mainly focused on servicing customers in six states – Andhra Pradesh and Telangana, Tamil Nadu, Karnataka, Gujarat, Maharashtra and Rajashthan. The loan book of the company today is approximately around Rs 4,000 crores, up from Rs 2,300 crores in FY20. Interest rates start from 8.9 percent for borrowers. Nearly 80 percent of its borrowers are self-employed. Ravi Subramanian, MD & CEO, spoke to Moneycontrol’s Hiral Thanawala on the impact of the second wave of COVID-19 on the demand for home loans and existing borrowers’ repayment capacities. Subramanian also talks about the reason for the higher home loan interest rates compared to those of peers.
Have COVID-19 2.0 and the lockdown in most of the states affected demand for home loans?
Yes, we are not seeing the same level of demand this time around. At this point, the second wave of the COVID-19 pandemic is really bad. People are apprehensive about going out. Hence, property purchases are not a priority. Customers are postponing purchases by a couple of months at this point. So, we can conclude that it’s a mix of customers not closing the purchase transactions, builders and financial institutions not meeting the customers due to lockdown in several states. All these factors are leading to a slowdown in the demand for home loans.
To what extent has the pandemic hit your borrowers’ repayment capacity? Do you expect loan restructuring and defaults to increase?
From our initial numbers, we don’t see any major impact of the second wave on borrowers’ repayment capacity. Our bounce rates went up around one percent in April and another 0.5 percent in May. With lower bounce rates, we understand consumers have the intent to repay home loans. There is a challenge in field collections due to lockdown in most of the states.
If the second wave continues beyond June, then the problem will be borrowers’ businesses and livelihood will start getting impacted. That is when borrowers will start facing challenges in timely repayments and may seek support in the form of extensions. During this period, we will see how best can we help them with customised solutions.
Also read: Aggressive home loan prepayment can hurt other money goals
Banks have lowered home loan rates to a 15-year low. But, your rates start at 8.9 percent. Why is that so?
Banks are targeting a specific set of customers with lower home loan rates. A large chunk of borrowers is salaried for banks. It’s because these borrowers have a steady documented flow of income and a high credit score.
Our target customers are self-employed and first-time loan borrowers. Banks do not serve these segments of borrowers. So, there is a clear demarcation of customer segments between banks and us.
In our home loan portfolio, 80 percent of the customers are self-employed. The risk and pricing are higher for this segment of home loan customers. So, the interest rates are kept higher.
There was home loan demand from the second half of 2020 till March 2021. Do you expect similar demand for home loans after the second wave of the pandemic settles down?
From July 2020 to March 2021, there was a huge surge in demand for home loans. Multiple factors contributed to the increase in demand. Some of these were home loan interest rates being at a 15-year low, reduced state governments charging lower stamp duty, attractive festive offers from developers for booking the property, etc.
We are expecting a similar surge to happen this time around as well in the second half of the year. The demand for home loans will be far better than last year. This is because the customer’s mood will be positive. After all, most of them will be vaccinated. So, people will be a lot more open to going out for buying a property.
Over and above all these, we are expecting similar benefits will be rolled out from the central and state governments this year as well in the unlock stages. Property builders and financial institutions will roll out attractive offers for customers. Also, lower interest rates on home loans will continue this year as well.
After the fall in interest rates, many borrowers switched their outstanding home loans to financial institutions offering better rates. Has there been a reduction in your loan book? How do you retain borrowers?
There is not much reduction in our loan books because of lower interest rates offered by other financial institutions. Our foreclosure rates are around 9.5 percent per annum; mainly customers who pre-pay the loan by switching to another bank or pay a lump-sum from their savings.
The foreclosure percentage is reasonably low in the industry because we have a strong customer retention process. Sometimes, the customer wants to switch financial institutions, not because of lower interest rates being offered, but because they sometimes require a top-up loan. We assess the customer's profile and understand the reasons for switching. We do offer top-ups on home loans to retain good customers if they seek and, in some cases, reduce the interest rates being charged.