Harshil Mehta, Chief Executive Officer, Aadhar Housing Finance, Harshil has over 15 years of experience in spearheading successful businesses in the financial services space with expertise in credit appraisal, operations and service quality across organizations. Harshil’s earlier stints include prominent entities like Transamerica Commercial Finance, Chicago, a leader in Inventory Financing & Fortune 500 company, and Whirlpool of India. In his second stint with Transamerica’s Indian business, Harshil set up its Indian subsidiary and launched inventory finance program that subsequently became part of ICICI Bank post acquisition by the latter. He worked in several capacities at Transamerica, including Head of Mortgages, Head of Service Quality, Business Head - Real Estate (property Services & Consulting) before heading ICICI Home Finance as the Managing Director & CEO. In his capacity as the CEO of Aadhar, Harshil will progress the objective of enabling financial access to the low income segment for fulfilling their dreams of home ownership whilst turning Aadhar into a successful business venture. He is an MSc from Mumbai University, and a MBA (Finance) from Graduate School of Business, Mississippi State University, USA. Harshil, in his leisure time, likes to travel. He likes trekking and actively supports outdoor activities.
Aadhar Housing Finance Pvt. Ltd. has been promoted by Dewan Housing Finance Corporation Limited (DHFL) and International Finance Corporation (IFC), a member of the World Bank group, as a segment focused housing finance company to enable housing finance to the low income segment in the six identified low income states of India, namely Uttar Pradesh, Madhya Pradesh, Chhattisgarh, Jharkhand, Bihar and Orissa. Aadhar reaches out to customers with incomes ranging from Rs. 5000/- to Rs. 20,000/- per month and provides loans upto Rs. 6 Lakhs. The flagship branch of Aadhar was launched in Lucknow, Uttar Pradesh in February 2011. Aadhar in its first year of operations has opened 15 branches across 6 states- Uttar Pradesh, Madhya Pradesh, Chattisgarh, Orissa, Jharkhand and Bihar that service over 28 locations through a hub-n-spoke model. Aadhar offers home loans, home improvement/ extension loans, plot loans, self construction loans etc. Aadhar also offers customised insurance coverage to protect customer risks. Aadhar successfully achieved Rs 1bn (FY12) loan book through its 15 branches in its first year of operations. The loan book of Aadhar in Q1 FY13 stood at Rs 1.32bn. Aadhar aims to continue the book growth at a reasonable pace in the years to come.
Speaking exclusively to Hemant P. Maradia of IIFL, Mr. Harshil Mehta says, “On a quarter-on-quarter basis, our loan book has been growing at the rate of 15% to 30%.”
What was the rationale behind the launch of Aadhar Housing Finance since the promoters already had a very substantial home loans business?
DHFL has been enabling financial access to the Lower and Middle Income (LMI) segment on a pan-India basis for over 28 years. To further strengthen its focus and reach out to the Lower
Income Groups (LIG) in the low income states of India, DHFL formed a segment focused housing finance company' Aadhar Housing Finance Pvt. Ltd.’, in association with International Finance Corporation (IFC), a member of the World Bank group.
Aadhar operates in the low-income states of the country like Uttar Pradesh, Madhya Pradesh, Chhattisgarh, Jharkhand, Bihar, Odisha and West Bengal.
Which markets are you targeting?
Aadhar is present in six states namely UP, MP, Chhattisgarh, Jharkhand, Bihar and Odisha - with 15 branches. The company will start operations in West Bengal next month with two branches.
As per Census 2001, the aforementioned states account for 33% of the total Indian population. As of 2012, the total estimated shortfall in housing in these states is 60.02 lacs. Importantly, access to organized credit is still a big challenge.
Aadhar Housing Finance sees very good business opportunity in catering to the low income groups.
Although our current focus remains these seven states, we will look at entering other states in the future. But, we will continue to service low-income groups.
What is the mandate of Aadhar Housing Finance? Who is your target audience?
Aadhar reaches out to customers with incomes ranging from Rs. 5,000 to Rs. 30,000 per month and provides loans upto Rs. 12 Lakhs. However, the loan amount should not exceed 80% of the property value.
Aadhar services customers from business as well as salaried segment across these states. In the self-employed category, Aadhar gives home loans to Kirana merchants, Grain Traders, Garments, Cloth, Books & Stationery, Electronics & Mobile, Shopkeepers etc...
What is the size of your loan book? What is the average ticket size of home loans?
While our mandate is to go up to Rs 12 lakh, our current average ticket size is Rs 5.4 lakh. Our current loan book is Rs 130 cr.
We follow the hub-and-spoke model. For instance, we will have a branch in Meerut, UP. From there we would then cater to the customers in smaller locations surrounding Meerut.
We cater to a total of 45 locations in the six low-income states.
How have you coped with the tough business environment?
The macro-economic headwinds do pose an additional challenge for us, but pent-up demand and our focus on low-income groups’ has helped grow at a healthy pace.
Where do you see your loan book in the next 2-3 years?
We have more than doubled our loan book from last year. Our first branch got operational in February 2011. On a quarter-on-quarter basis, our loan book has been growing at the rate of 15% to 30%. This is due to new locations being added on a quarterly basis.
Over the next one year, we see ours loan book growing at 40%.
Aadhar has strong plans to achieve a loan book of ~Rs1000 cr by 2017.
Where do you see interest rates headed in the next 12 months?
We are of the view that we may not see any further hardening of interest rates. Interest rate seems to have flattened out. With CRR being cut, it releases enough liquidity in the market to boost credit offtake. From a retail business perspective, higher inflationary pressures put downward pressure in offtake of home loans. Home Loans is a sentimental product and inflationary pressure affects decision making.
We expect interest rates to soften over the next 12 months if not harden. Furthermore, if ECB is allowed for HFCs, it may lead to reduction in overall cost of funds and hence the lending rates.
Have you seen any major change in your funding costs? What is the biggest source of your funds?
Our average ticket size of loan is Rs 5.4 lakh. That means all our loans get classified as priority sector lending. Whichever bank gives us the line of credit also gets the benefit of priority sector lending.
Now with that guideline being scrapped, banks do not get the benefit of priority sector lending. So, the credit lines are now seen as any other commercial loan. As a result, pricing of loans does get impacted.
Besides equity, we have term loan facility with a few banks. We have also undertaken a process of getting ourselves rated. That will give us an additional window for sourcing funds.
We are keenly awaiting guidelines on allowing External Commercial Borrowing (ECB) for affordable housing. We have to see we are also eligible for ECB funding.
What is your Net Interest Margin (NIM)? Where would you like it to be in the next 2-3 years?
Our net interest margin is around 225 basis points (bps) or above. We see it being rangebound. The net interest margin largely depends on cost of funding. Our leverage is less as we have used more equity for funding needs. Lower cost of funds will help us improve the net interest margin. At the same time, we will be able to give a higher quantum of loans to our customers.
We have 15 offices and we are servicing about 45 locations from those branches. By the end of this year we are looking to have a total of 18-19 branches and will be servicing 75 locations.
What are your gross NPA and net NPA?
Our NPA level currently is zero. Our in-house credit and technical assessment teams, help us understand our customer and their requirements better. Further we do not over-leverage out customer.
What kind of targets have you set for FY13?
This fiscal year, we have set ourselves an ambitious target of processing housing loans worth more than Rs 100 cr cutting across branches.
What is your take on the regulatory environment?
Overall regulatory environment remains favourable. But areas such as re-financing, priority sector lending and clarity on ECB will go a long way in improving the sentiment for the housing finance companies like us.