RBI Rate Hike May Not Hurt Real Estate Growth
Vinay Sah, MD and CEO of LIC Housing Finance (LIC HFL), talks to Naveen Kumar on the latest developments in the housing finance industry and the performance of the company as one of the significant NBFC players in this segment.
Q: Are home loan borrowers back in the market? What has been your growth in terms of number of borrowers, disbursal and total outstanding?
A: The real estate sector has undergone a huge transformation in recent times, driven by a series of legislative and structural reforms such as the Real Estate (Regulation and Development) Act (RERA), Goods and Services Tax (GST) and according infrastructure status to the affordable housing sector. Recently, the Insolvency and Bankruptcy Code (IBC) has been amended to include homebuyers as financial creditors. On the supply side, we see developers reorienting their business models by working around designs and tweaking configurations of residential apartments to make them affordable.
LIC HFL has done reasonably well during FY2017/18. Home loan disbursal, our core business, grew by 20 per cent while the project loan segment grew by 33 per cent. Our customer base has also gone up by 10 per cent. Overall loan book growth was more than 15 per cent and in terms of volume, it stood at Rs1.66 lakh crore. In the current fiscal, we have expanded our footprint in the country and added 23 marketing offices.
Q: Has the Credit Linked Subsidy Scheme (CLSS) under Pradhan Mantri Awas Yojana (PMAY) seen good traction? What percentage of your retail loans has been disbursed under the scheme?
A: It has certainly given a thrust to the real estate sector and first-time homebuyers are benefiting immensely. As part of our marketing strategy, we have disbursed 21,619 loans across EWS/LIG, MIG-1 and MIG-2 categories. About 9 per cent of the loans disbursed last year went to this segment. Affordable housing under PMAY-CLSS is a significant growth driver in the real estate sector primarily due to the subsidy it offers. Plus, you get income tax benefits.
Q: What are the monetary benefits of CLSS? How long does it take to claim it?
A: A borrower must be a first-time homebuyer and he/she or any of the family members must not own any pucca house anywhere in India - that's the basic eligibility criteria for the subsidy. For the EWS/LIG category, the subsidy could be up to Rs2.67 lakh for an annual income of Rs6 lakh or less. For MIG-I and MIG-II (yearly income not exceeding Rs12 lakh and Rs18 lakh, respectively), the interest subsidy amounts to Rs2.35 lakh and Rs2.30 lakh, respectively. The government has recently announced that the carpet area for MIG-I will be increased to 160 sq. m from the previous 120 sq. m; for MIG-2, the carpet area is now 200 sq. m instead of 150 sq. m. We send the subsidy claims to the National Housing Bank (NHB) and after due verification, NHB releases the claim amount as applicable to the construction stage. When we receive the claim amount, the same is passed on to the borrower. So, borrowers under PMAY-CLSS get twin benefits - a reduction in outstanding loan amount and consequently, a reduction in EMI.
Q: How will rising oil prices and depreciation of the rupee impact interest rates?
A: The RBI's repo rate hike by 25 basis points has come after four years following the rise in crude oil and commodity prices. It probably signals a modest tightening of the interest rate cycle. My view is that future rate hikes will depend on the movement of crude oil prices and inflationary pressures on the economy. As of now, a part of the hike in interest rate has already been factored in by lenders. But there may not be any major impact on the real estate sector if the rate goes up by 25-50 bps. Most of the home loans are floating in nature and come with 15-20 year tenure. Hence, the rise and fall in interest rates get balanced out during the loan life cycle.
Q: What about non-performing assets or NPAs?
A: Our robust systems and credit appraisal norms act as a filter against adverse selection. Besides, we have a well-defined credit monitoring systems in place that proactively identifies and engage with potential defaulters. Retail borrowers make 95 per cent of our loan book and developers constitute the rest. As of March 31, 2018, our gross NPA stood at 0.78 per cent. Out of that, 0.42 per cent is in retail lending, which is good by industry standards. NPAs have risen in the builder segment mainly because four or five accounts have slipped into the NPA category. But the value of the underlying securities is quite adequate and we are in various stages of recovery.
Q: Do you reward borrowers who don't default?
A: Customers with good profiles, as evidenced by their nature of employment/business, cash flows, banking habits and the value of their security, get differential rates of interest. Existing customers with impeccable repayment records are also rewarded with top-up loans at attractive rates, which can be used to meet personal requirements. Last year, we launched a product called Advantage 5 Plus for customers who want to switch over to us to benefit from our lower interest rates.
Q: How is RERA implementation going? Will the amended IBC help people?
A: RERA is still in its early stages. But it is steadily bringing order to the sector and also imposing on the promoters the need to standardise business practices. We have already seen media reports about fast-track dispute resolutions. It is an indication that RERA is working.
IBC is another plus. As it treats homebuyers as an integral part of the resolution plan, people will feel confident to invest in real estate and that will help revive the sector. Buying a home is the costliest decision of one's life and the IBC amendment gives the purchaser a sense of security. Now customers feel that their hard-earned money will be protected. Earlier, homebuyers had to fend for themselves and fought prolonged legal battles, which often left them in the lurch. That will be over as the amended IBC kicks in.