Affordable Housing To Spur Credit Growth

The market potential is huge and will grow across all retail lending portfolios

By Teena Jain Kaushal  
Saturday, December 9, 2017

The real estate industry in India is passing through a slowdown as a huge inventory of premium homes are lying unsold. In stark contrast, the affordable housing segment, most coveted by the lower- and the middle-income groups, is set to grow at a faster clip as the government's policy directive - Housing for All by 2022 - is finally seeing some serious action on the ground. Harshil Mehta, Joint Managing Director and Chief Executive Officer of DHFL, tells Teena Jain Kaushal how affordable housing can play a crucial role in reviving the industry amid faltering bank credit growth. Edited excerpts:

Q: Banks are now struggling due to huge non-performing assets and corporate lending is down. Could home loan push revive credit growth?

A: Housing finance in India is perceived to be the third most impactful industry. It is the second-largest loan portfolio for non-banking finance companies (NBFCs) and a critical sector for job creation, accounting for 5-6 per cent of India's GDP and capital formation. The affordable housing segment is likely to grow over 30 per cent, and it is emerging as a key growth driver for the mortgage finance market. In the Consumer Index Pyramid, there is a huge demand for housing, especially at the base of the pyramid comprising lower and middle income (LMI) groups, and they are more than 80 per cent of the population. To service their growing demand, we need a combination of banks and specialised entities like housing finance companies (HFCs). It will make the industry broad-based, enhance demand and expand financial inclusion, which HFCs can leverage, and the credit market will grow.

Q: Will bank recapitalisation impact NBFCs?

A: It is a positive move as it will give access to credit on better terms and more opportunities to sell infrastructure and priority sector loans. The market potential is huge and will grow across all retail lending portfolios. Specialised lending companies will have an edge in this environment due to better turnaround time, last-mile agility and use of data analytics and technology. NBFCs, with their large distribution networks and dedicated customer service, are strong in retail lending as they are equipped to handle the voluminous business. So, we foresee a positive uptrend, especially for those operating in the affordable housing and SME segments.

Q: Home loan interest rates have come down, but demand is not picking up.

A: If (the low) interest rates hold and real estate prices do not shoot up, it will improve affordability and demand will go up. The government has taken several steps to build a growth environment for the affordable housing sector. Although the industry is served by several large financial institutions, companies like DHFL have strong competitive advantages to serve LMI customers in tier II and tier III markets. Consequently, our loan book outstanding grew 24.6 per cent to `81,390 crore for the July-September quarter this year. Loan disbursements stood at `9,950 crore and sanctions at `14,201 crore, showing an increase of 50.6 per cent and 68.3 per cent, respectively, compared to the year-ago period.

Q: What is your take on affordable housing?

A: The government has taken several noteworthy steps towards generating greater credit offtake and supplies in affordable housing. Plus, it has put in place a stringent regulatory environment. The countrywide implementation of Real Estate (Regulation and Development) Act or RERA is a milestone step towards stronger governance and greater transparency. It is a timely implemented initiative to ensure industry development and a catalyst to meet the objectives of 'Housing for All by 2022'.

Over the past three decades, DHFL has been provided finance for affordable housing to the LMI, backed by assets and lower loan-to-value ratio, thus maintaining the asset quality. We believe that this segment is poised for growth, led by various policies and initiatives undertaken by the government over the past few quarters. There is tremendous potential in affordable housing, and evidently, the government understands the impact of exponential urbanisation and the need to serve the growing demand in this space.

Q: Are smart cities a good investment option?

A: The objective is to drive inclusive growth, provide infrastructure for improved quality of life and create employment. Smart cities present numerous opportunities. So, they are a good investment option with moderate returns coming in.

Q: Tell us how DHFL has evolved.?

A: DHFL is a comprehensive financial solutions provider and the affordable housing-LMI segment is our target market. Consequently, we have aligned our business model and products and services to best suit its needs. We have also adopted a verticalisation strategy so that our businesses (housing and non-housing loans) can focus on their respective core competencies while leveraging synergies in underwriting loans and meeting diverse financial requirements. In the July-September quarter, our AUM (assets under management) stood at `94,089 crore.

As DHFL moves towards a higher growth phase, we have taken steps to ensure that the organisational performance is well on course and we continue to leverage growth opportunities. We are also strengthening the leadership team at strategic levels via talent acquisitions so that we can achieve our aggressive growth targets.

Q: How do you use technology to help customers and stay ahead of the curve?

A: DHFL is upgrading its IT infrastructure to leapfrog to the next-generation technology landscape. The digital initiatives will usher in speed and efficiency in day-to-day operations and superior analytical insights that will help us design products and services in sync with the changing requirements. They will also future-proof the company, improve productivity, reduce costs and enhance customer convenience. We are moving towards a 'phygital' organisation, creating a unique, integrated ecosystem of digital and physical consumer touch points so that our customers can seamlessly interact with us in their preferred environment.

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