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In an exclusive interview with Ms. Smita Mehrotra of Indiainfoline.com, Mr. Subrata Dutta Gupta, Managing Director, Birla Home Finance Ltd. talked about the company and discussed its future plans.
What are the disbursements of your company? How much do you expect it to be in the next three years? What is the geographical distribution of disbursements?
Disbursement of our company have reached a level of approx. 10 crores a month and we are on the line for achieving the ambitious target of 100 crores in this financial year.
We propose to step up disbursements nearly eight fold in 2001-2002 and go on to achieve a book size of approximately 1000 crores+ in the third year.
We are already a national company. However a bulk of our disbursement as on date is concentrated in North India.
What is the average loan size and tenure of the loans? How much for refinancing sale and how much for fresh stock?
The average loan size over 700 live accounts is approx Rs. 3.5 lakhs with an average tenure of nine and a half years, 90% stock is fresh.
What is your branch network, employee strength? What is your company?s USP?
We have currently branches operational in Calcutta, Chennai, Hyderabad, Bhopal, Jaipur, Faridabad, Noida & Delhi & further openings are planned in the next 6 months at Cochin, Bangalore, Chandigarh & Mumbai.
What in your estimate is the total spending in India on housing sector? How much spendings come from informal sector?
Our estimates indicate that house buying, renovation, extension is a market worth approx 40,000 crores per annum, of which the formal sector finance accounts only for about 25%. The balance is a mixture of own savings, contribution from friends and relatives, employer?s loans and other sources.
With HDFC taking on the loan portfolios of some of the smaller housing finance companies like Dewan Housing etc., what is the future of the other players in this field? What is Birla home finance?s strategy for combating the large players like HDFC? Ever considered selling part of your own loan portfolio for a good price to another housing finance company?
HDFC is currently taking on the loan portfolio of smaller companies, which is inevitable. As the business gets crowded and competation increases, lesser capitalized companies are unlikely to survive as independent entities. BHEL?s strategy is simple:
Funds is not the issue with BHEL. Therefore, selling our own portfolio has not occurred to us rather we are on the look out for good portfolio to buy.
Does Birla Home Finance have the facility for adjustable rate home loans? If so, how have they fared? HDFC provides this facility and it seems to be gaining popularity.
BHEL has a facility for adjustable rate home loans. Every single client who has requested for this facility has been given the option. However given the administrative difficulties as well as the attitudinal problems with the Indian borrower there is still a long way to go before these loans gain real popularity.
In the recent credit policy, RBI governor, Bimal Jalan seems to indicate possibility of some sort of an upward revision of interest rates in the near future. Any chances of home finance providers hiking home loan rates in the near future?
Yes, most of the anticipated increase in rates have already occurred. Further increase for the time being seems to be ruled out unless the money market experiences a major change.
With the last budget having given incentives for tax savings to home builders (even second home builders) has there been any noticeable increase in total demand for home loans? Has Birla Home finance experienced any increase in disbursals?
Yes a general trend is seen in off take of housing loan and BHEL has been able to take advantage.
Where do DSAs feature in your model?
As of now the DSA option is ruled out. But it is not ruled out forever. We have a particular strategy to unfold, and certain milestones to achieve, and till that happens, we are keeping out of it.
Which markets do you see as hot? Retail/commercial and which cities/urban areas?
Obviously those which are attracting, strong investments and FDI inflows. FDI?s create employment and employment creates inflow of population into an urban center, which leads to housing demand. Now, if you went around seeing the housing stock availability in an urban center, its social infrastructure, and factored in the investment inflow you would be able to spot the hot markets.
What is the future of real estate prices in major metros? With the genuine investor coming back into the market, and speculators out, does it look like real estate prices may not move up too much.
Yes, we are noticing this very welcome feature and we feel that volatility either way is a thing of the past. However, a crucial feature is the availability of the unsold housing stock and that acts as a dampner on the rising trends.
What about the plan for mortgage backed securities which has been about to take off for some time now? Any progress as far as the pilot issue for that is concerned? Would you be taking part in the issue which HDFC and SBI home finance alongwith NHB had planned?
Well it has taken off, and pilot issue has been sold but we are young company and we would like to first see things develop. There are no plans to participate as of now.
With larger number of players in the home finance field, has there been pressure on spreads in housing finance. How does Birla Home finance plan to increase spreads? Are there any additional services that Home finance companies can provide, to be one-up.
Spreads are going to fall further. Therefore increasing spreads is out of the question. Non-fund income through value added services is of course very viable business strategy, but then you require real expertise for that. With our tie-up with BHW Holding, which is a full spectrum housing finance company, we do believe we have an edge.
Finance companies are becoming more and more flexible in the repayment patterns, to encourage greater loan portfolio. What is your view on this? Any methods you adopt for greater flexibility on repayments?
Yes that is true. Flexible repayments are coming into vogue, but we think that the real issue is the employment and labour market in India that has not witnessed the changes because of liberalization. In the absence of social safety nets those details are difficult to judge as of now. We are sure that after the first wave has swept through the labour and employment market some better opportunities will emerge. Courtesy our partner, we have those products and we shall think of introducing them at that stage.
What about refinancing loans of competing housing finance companies? Is there a lot of that happening? Does Birla Home refinance and what is the future of the refinance market?
We think that this is fair game and the customer should benefit from a better choice and we are watching this development very very carefully. In our view as the market tends to becoming oligopolistic with 3-4 or even 5 large players, this market will disappear and get replaced by the originators selling to mortgage investors, as it is in the US.