Can Fin Homes Ltd Management Discussions.

Indian Economy

Indias GDP growth recovered to 1.6% in the last quarter of fiscal year ended March 2021, narrowing contraction in the whole fiscal year from estimated 8% in April to a revised 7.3% during the fiscal year 2020-21 due to the Covid-19 pandemic. The nation-wide lockdown enforced on March 24, 2020 led to severe demand contraction and supply chain disruption across the country, dragging down the quarterly GDP to a record -24% in Q1FY21. Economic activity improved during the unlock phase from June and was supported by pent up demand as investment and consumption grew. The economy delivered sequential quarterly growth in the last two quarters and was among the few global economies to do so.

Among the measures taken to cushion the attendant economic crisis from the pandemic, India adopted an expansionary monetary and fiscal policy, in sync with the global economies. The policy rate was maintained at 4% since May 2020 and along with open market operations conducted throughout the year, the Reserve Bank of India ensured liquidity in the system and lower cost of borrowing. The Government consumption increased by 2% in FY21 aided by various relief schemes for social security and demand revival.

The IMF revised Indias GDP growth forecast for FY22 to 9.5% in a span of four months coinciding with the last quarter for FY21. This optimism around recovery, albeit on a low base effect, validates the broad-based recovery observed across sectors during the same period.

However, uncertainty in growth resurfaced since the resurgence of infectious waves in mid-April 2021, exacerbated by the deficient public health infrastructure. The threat was further amplified by the rise in mutation of the coronavirus and other deadly pathogenic outbreaks, while the Government remains constrained with a fiscal deficit of 9.3% in FY21.

The macroeconomic variables, though controlled, are vulnerable to the uncertain global economic environment. The inflation projection will depend on global factors such as commodities super cycle trends, increasing food prices and geopolitical tensions. Amongst the domestic factors, rising contagion effect in rural areas could dampen the expectations from strong forecast for monsoon and robust agriculture sector. The resulting supply chain disruption could increase headline inflation.

The outlook of the economy, during such uncertain conditions, depends largely on the vaccination rate and containing the rise of new cases.

Indian Housing Review

The Indian housing sector is the largest employment generator in the economy, after agriculture. Besides having a direct impact on the countrys GDP and influencing the consumption pattern of its 1.3 billion population, the sector indirectly impacts the human capital formation. Apart from the social and cultural aspect associated with housing, it represents a significant asset class for investment by Indian households.

The Indian housing market is broadly categorized into low, middle and high income according to income potential of consumers. From the supply side, it is transitioning towards a more regulated and efficient market marked by consolidation and entry of new corporate houses and supported by new regulations like GST, RERA, etc.

Prices

The consumer demand witnessed steep decline at the onset of the pandemic which reflected in the increased supply of unsold inventory. In an attempt to balance the mismatch, promotional discounts by developers were offered to attract the consumers. This was further supplemented by policy measures such as stamp duty reduction in various States and overall low cost of borrowing in the prevailing low interest rate scenario. The resulting downward pressure on prices is likely to have further improved the affordability ratio in the middle income segment, which probably explains the increase in consumer uptake during the second half of the fiscal year. The quarterly growth of 1.2% in Q3FY21 further corroborates the resumption of economic activities and consumer buying activities after unlocking the economy.

Inventory

New launches and sales, across top 8 cities, registered a sharp decline during the nationwide lockdown in the first quarter of the fiscal 2020-21. However, new launches witnessed marginal improvement thereafter due to improvement in economic activities and demand. The number of units of unsold inventory also declined marginally in Q2FY21, even as the inventory overhang (i.e., average number of months required to sell unsold houses) increased sharply in the wake of the pandemic.

Growth Drivers for Housing

Housing deficit

Urbanization rate in India has increased from 31% in 2011 and is likely to reach 39% by 2036. With a population of 1.3 billion and consumption driven economy, there is significant opportunity in the housing sector.

Demand in Tier II and Tier III cities

The reverse migration that was triggered by Covid 19 along with the work from home culture which is becoming the new normal, requires additional housing units. Affordability and improved infrastructure have also increased demand for housing in smaller cities. Government initiative in smart cities has also triggered demand.

Ready to move-in:

The pandemic has made the average city resident realize the worth of his/her home which is now doubling up as office space and since this arrangement is unlikely to change in the foreseeable future, home buyers are looking for bigger and ready to move in spaces. Low interest rate and consumers preference for immediate possession are the added factors for upward movement.

Affordable Segment:

The affordable to mid housing segment will continue to command significant traction from buyers who would be willing to leverage upon lower cost of borrowing to buy household property to suit their income, save on rental expenditure and to avail tax benefits.

Digital transformation:

The ongoing pandemic has altered several narratives. This in turn has not only impacted lifestyles but has also altered the way business is done across industries. For the Financial sector it was important to build on and create platforms to ensure smooth operations due to remote working which traditionally is catered to through personal interactions. This sudden shift accelerated the pace of adoption to digital platforms to cater to customers and their needs across products and services to conduct business safely and securely enabling customers to have a seamless experience.

This transformation required a complete overhaul of existing IT systems preparing for a New Normal by capitalising on existing technology advantages and implementing of diverse Data Management Systems (DMS) and Application Programming Interface (API) that have been accessed during the remote working phase. Automation and data analysers tools were embedded/linked to the existing system thus enabling smooth operations and business continuity. A few changes which were vital for transformation are enumerated below:

1) Extension of existing onboarding platforms (websites) were extended to channel partners

2) Real time tracking facilities were made available through mobile apps

3) Customer Acquisition and validation of details through alternate modes like video calls and relaxations for existing customers

4) Assessment of customers with regard to eligibility of loans was done through data fetching from public portals like Goods and Service Tax Network, Ministry of Corporate affairs etc.

5) Tools for real time bank statement information analyzers with real time analytical capabilities has been integrated with the system thereby strengthening the loan origination and processing.

6) This period also sees Fintechs providing API based solutions thus further enabling businesses with tailormade solutions for better control and faster execution.

7) Introduction of Artificial Intelligence/Chat bots to enable resolution for customer queries, complaints and requests enabling faster resolutions.

While these adaptations are rapidly evolving, the pandemic has further enabled Fintechs to strengthen their presence and provide reliable offerings through customized products & partnerships.

Policy Developments during the fiscal year 2020-21

The policy action framework intended to provide liquidity into the system and ease the flow of credit to the capital-intensive real estate sector, thereby influencing economic activity in the country. The notable among them were:

• An Rs.30000 crore Special Liquidity Scheme for investments in debt papers of NBFC and HFC.

• The Partial Credit Guarantee Scheme, launched in 2019 for the purchase of pooled assets from NBFC and HFC, was modified to also cover their borrowings during the fiscal year 2020-21.

• Financial Institutions including NBFC-HFC were allowed to offer Moratorium facility on payment of instalments with respect to term loans for six months along with relaxation in asset classification norms.

• Extension of the Priority Sector classification for bank loans to NBFCs for on-lending during FY21.

• CRR exemption for banks and allocation of proceeds from Targeted Longer-Term Refinancing Operations (TLTRO) 2.0 auction for improving credit flow towards sectors including housing.

• Risk weights to be rationalized and linked to Loan to Value (LTV) ratios only for all new individual housing loans sanctioned up to 31st March,2022.

• The Co lending model of loans, initiated in 2018 for limited category of banks and NBFCs has been extended to HFCs to improve the credit flow. This will enable a symbiotic development of banks and HFC through leveraging their financial and operational advantages, respectively.

Government schemes and achievements during the fiscal year 2020-21

• Covid-19 related disruption declared to be treated as force majeure under the Real Estate (Regulation and Development) Act and criteria for the scheme fixed thereof.

• The Credit Linked Subsidy Scheme, introduced in 2017 and previously extended till 31st March, 2020 was further extended by one year up to 31st March 2021, for middle income group (MIG) with annual income ranging between

H 6-18 lakhs. The extension has been estimated to benefit 2.5 lakh middle income families during the fiscal year FY21.

• Deadline for Emergency Credit Line Guarantee Scheme (ECLGS 2.0) extended till 31st March, 2021.

• Under Aatmanirbhar Bharat 3.0, a sum of Rs.18000 crore was provided for PMAY-U over and above Rs.8000 crore allocated in FY21, which is expected to build 12 lakh houses and complete 18 lakh houses.

• The Special Window for Affordable and Mid-Income Housing (SWAMIH) Investment Fund was established in 2019 to enable delivery of stalled housing projects in the affordable and middle-income housing segment, by extending loans for completing the construction. Rs.25000 crores fund aims to complete 116,000 homes and has already given final approval for 72 projects translating into 44,100 homes by FY21.

• Pradhan Mantri Awas Yojana-Urban (PMAY-U), launched in 2015, aims to provide pucca houses to all eligible urban households in the low income and mid-income categories including slum dwellers, by 2022. Under the scheme, 112.5 lakh houses were sanctioned by the end of March, 2021 against a demand of 112.2 lakh houses, of which 48 lakh units were already completed. In addition to this, work had also started on 80.2 lakh house units.

• Affordable Rental Housing Complexes (ARHC), a subscheme under PMAY-U, has been initiated to extend dignified living at affordable rent to urban migrants/ poor in the Industrial sector and those in informal urban economy, close to their workplace. The scheme, which includes new construction along with conversion of existing Government funded vacant housing complexes, has been estimated to benefit 2.95 lakh beneficiaries.

The Budget for fiscal 2021-22 further announced proposals for the development of the real estate industry focusing towards residential segment. The safe harbor limit, which reduces liability and offers certainty in business, was increased from 10% to 20% for residential units. In the affordable housing segment tax incentives were provided which reiterates the Governments push towards this segment. Furthermore, to attract investments in the sector, tax incentives were extended towards dividend payments in REITs and INVITs along with allowing foreign portfolio investments.

Housing Finance Sector Overview

Housing finance market in India is primarily dominated by scheduled commercial banks and Housing Finance Companies (HFCs) with HFCs consistently accounting for nearly two-fifth of the total housing credit. The overall share of individual housing loans from banks and HFC combined stood at 9.9% of the GDP by end March 2020, along with an outstanding of over Rs.20 lakh crore.

By end March 2020, there were over 100 HFCs in India, dominated by non-Government public limited companies. This trend will continue in future also. Debentures and bank borrowings have been the main sources of resource mobilization for HFCs, constituting 66% of total resources, while the rest is mobilized through public deposits, NHB, foreign borrowings and others.

The HFCs were the second largest borrowers of funds from the financial system, after NBFCs, with gross payables of Rs.6.2 lakh crores and gross receivables of Rs.0.53 lakh crores as at end-September 2020. The resource mobilization from Commercial Papers picked up marginally in the Rs.1FY21.

The RBI modified the rules under its revised framework for Housing Finance Companies (HFC) during the fiscal year 2020-21, to manage the systemic risk to the financial system. The changes listed in the framework include:

• Defined principal business, housing finance and qualifying assets for HFCs. The qualifying assets should be a minimum 50% of total assets, of which at least 75% should be towards individual housing loans, to qualify as HFC.

• Classified non-deposit taking HFCs with asset size greater than Rs.500 crores and all deposit taking HFCs as systematically important HFCs.

• A minimum net owned funds (NOF) of Rs.20 crores would be required to operate as HFC.

• The RBI rules on liquidity risk framework, liquidity coverage ratio, securitization as applicable to NBFCs will be applicable to HFCs after a cooling period of two years.

Impact of Covid-19

The resurgence of the fresh Covid-19 wave has put many MSME, individuals and small businesses under stress. Taking cognizance of the prevailing situation, the RBI announced Resolution framework 1.0 and 2.0 under which individuals and small businesses having exposure upto Rs.25 crore and Rs.50 crore respectively, can opt for restructuring as per applicable schemes. In case of those who had availed the loan restructuring under the earlier scheme, the RBI permitted the Banks and lending Institutions to modify the plans and increase the period of moratorium to help alleviate the potential stress.

The slowdown induced by the Covid-19 pandemic, impacted Banks and HFCs, however, registered year-on-year growth of 8.5 per cent and 3 per cent, respectively (NHB report in September 2020). The rising refinance offtake and sanctions by Housing Finance Companies (HFC) so far indicate the demand for housing is back in the market, both in lower income and middle income segments.

Lower property prices coupled with reduction in stamp duty/registration charges in states like Maharashtra, will propel growth. In order to be at par with other Southern states, the Government values have been revised upward for registration and registration charge in Telengana. This is helpful for IT professionals and other salaried employees to access reputed builders, go for high end properties and avail higher loans in a low interest regime. Backed by government policies, support measures and rising population, environment is conducive for affordable housing. Affordable segment housing will continue to remain in demand, as home buyers having an appetite for new property purchases will look to rationalise their quantum of investments.

The housing finance industry had to face many challenges because of Covid 19 and has opened up multiple opportunities due to various relief and liquidity measures announced by the Government and the regulator.

The lower rates coupled with stagnant property prices have led to increase in the affordability. Housing finance disbursement gained momentum in Q3 and Q4. The co-lending model will leverage the competitive advantage of banks and HFCs in a collaborative effort and make available funds to the ultimate beneficiary at an affordable cost, considering the lower cost of funds from banks and greater reach of the HFCs.

With gradual lifting of lockdown measures and reopening of economy, the housing finance activity is on the trajectory of revival. Distinct signs of green shoots in housing finance sector was witnessed in the month on month improved credit offtake from HFCs.

The asset quality across various segments of mortgage finance market such as housing loans, loan against property (LAP), etc. was impacted due to Covid 19 and attendant skepticism in debt servicing capacity of borrowers. The 30-basis point increase in the Gross NPA (GNPA) during 9MFY21 to 2.7% is indicative of the cash flow stress among the borrowers, leading to increase in overdues. With the withdrawal of forbearance measures and intermittent hiccups in economic recovery, the asset quality is likely to deteriorate further, if not properly monitored, thereby countering the upward pressure from increase in credit offtake on profitability of the HFCs.

During H1FY21, the disbursement of individual housing loans of HFCs and banks fell by 45% and 48% respectively, due to demand contraction in the first quarter of the fiscal owing to the lockdown.

During H1FY21, NHB provided refinance support of Rs.32,851 crores of which 90% was meant for HFC and disbursed subsidy under PMAY-CLSS amounting to Rs.5353 crores. This helped the lending Institutions avail benefits of liquidity thereby further reduction in EMI for the borrower.

The credit offtake during the second half of the fiscal 202021 further indicates the pick-up in housing demand across low and mid-income segments, after the unlocking of the economy in Q2FY21.

Overall Developments and Outlook

The housing finance market was supported by favorable operating environment marked by sharp decline in cost of funds and liquidity measures provided by the central bank and Government. Consequently, the transmission of lower interest rates to borrowers further improved affordability thereby driving sale of housing units, particularly in the affordable and mid income segment. However, the normalization of disbursements to pre-covid levels was observed during the second half of the fiscal 2020-21.

The situation is improving for the residential sector. The enhanced role of Reserve Bank of India (RBI) in the housing sector ensures a better regulated environment for home loan buyers. The policy rates held by the Central Bank are kept low for aiding economic recovery, thereby increasing consumption and growth. As a result, mortgage rates are low, while prices are stagnant. These twin factors make it an appropriate time to acquire a home. As developers have been brought under the domain of RERA, only credible ones who are capable of timely execution of quality products will be able to subsist in the new normal.

From the supply side, structural changes such as including priority sector lending under the ambit of HFCs, developers expected to focus on unfinished projects that were delayed in FY21 and increase in new projects in the current fiscal, is likely to improve demand.

The demand potential driven by rising population and increasing urbanization along with shifting preferences for consumers in the post lockdown environment, is likely to sustain in the near term. The Government push towards affordable and mid-segment housing will further propel growth in the segment on year due to continuation of credit linked subsidy for availing benefits for affordable housing upto March 31, 2022.

Company Overview

Can Fin Homes Ltd. (CFHL), is one of the leading players in the housing finance arena, providing housing loans for individual homes. It also offers non-housing loans including mortgage loans, site loans, loans for commercial properties, loan against rent receivables, top up loans and personal loans. Can Fin Homes is one of the few institutions approved to accept term deposits from the Public.

Can Fin Homes Ltd. has 200 branches spread over 21 States and Union Territories. The Company offers Housing Loans and Mortgage Loans at competitive interest rates both to Salaried and Self-employed category of borrowers, designed to cater to their individual needs.

The Companys focus has mainly been on Housing Loans to individuals with 90 % of loan book comprising Housing Loans and 10 % for Non-Housing. Average Age of incremental borrowers is around 35 years who are mostly first-time home seekers. In order to uphold its objectives of encouraging home ownership and enhance housing stock in the country, the Company focuses on affordable and mid-segment to reach out to a larger cross section of home aspirants. The average ticket size of the loan is Rs.20 lakhs in respect of housing Loans and Rs.10 lakhs for non-housing loans.

The Company will continue its focus on affordable segment and will increase its presence in mid-segment to drive faster growth. With this strategy, its growth is expected to be much faster than before. With clear focus on mid-segment, the Company will be able to gain market share in high-end Developers/Corporates. This will also increase ticket size and will reduce risk.

With sustained efforts, the cost of funds was brought down by 107 bps during the year through continuous negotiations with Bankers by repricing term loans and working capital limits. Cost effective funds were also mobilised through market borrowings and refinance facility from National Housing Bank. During the year, the Company changed its pricing strategy as a customer retention initiative and to increase incremental business. In the past the Company has demonstrated its ability to build business at higher yields. The Company will explore possibility of earning better yields with specific products/geography. With one of the lowest cost of funds, the Companys efforts for raising cost effective funds will continue.

The Companys preference for salaried profile will continue in tune with its strategy, which has helped maintain a healthy asset quality. Self employed will be sourced from safe geographies and with better credit profiles.

Throughout the year, the Company has been maintaining adequate liquidity position which has enabled it to raise funds at competitive rates.

The Company has an array of products, focusing on diverse customer requirements. It caters to both the housing and non-housing segment by offering attractive, competitive rates of interest.

The Company is helmed by richly experienced, astute professionals in all aspects of banking and housing finance. It has eminent personalities on its Board. The branch offices are manned by capable, efficient and trained employees to help the Company source and process quality loans, maintain effective internal control and deliver excellent customer service.

The hallmark of CFHL is a strong, resourceful governance framework and effective operating procedures.

The Companys constant endeavour is to improve its TAT (turnaround time) for the customers and provide efficient service and guidance to abide by our motto of Friendship Finance. Customer satisfaction is the gateway to get newer clients and expand business.

A healthy Asset quality is one of the pivotal factors instrumental for CFHLs growth and reliability since it directly impacts provisioning, profitability, net worth and CRAR. The Company has strong credit underwriting practices and has an effectual system to persistently oversee branch operations and assess risk build up, if any. Additionally, CFHLs proven risk management systems and procedures have helped maintain good asset quality.

Digitalization measures enabled our Company to connect and engage with our Customers for business and collections during the lockdown and even after, on account of the need for social distancing.

The Centralized Processing Centres have been increased to standardise decision making and to increase productivity and TATs. The Company is following a well-established branch model where Branch Manager is responsible for business, collections and customer service.

Business Segment Overview

Can Fin has a widespread presence in India with 200 branches in 21 states spread across the length and breadth of the Country. Despite the Pandemic, Can Fin Homes performed well during the fiscal 2020-21 in most of the business parameters. The Companys wide range of loan products under Housing and Non-Housing Loans, suit the varied requirements of a large cross-section of borrowers. Necessary measures were taken to bolster the Company in a financial year which was largely dominated by the Pandemic.

The focus of the Company continued on retail home loans in LIG and MIG space. Housing Loans stood at Rs.22,105 crores as on 31/03/2021. The Loan Book Portfolio of the Company crossed Rs.22000 Crore during the FY 2020-21.

Housing Loans and Other loans sanctioned (loan approval) were to the extent of Rs.4631 crore as against previous years figure of Rs.5897 crore. Disbursement figure for FY 2020-21 was Rs.4332 crore, while the same was Rs.5481 crore during FY 2019-20.

Salaried Class and Professional Category of borrowers continued to be the preferred class of loan recipients. The average ticket size of incremental Housing Loans and NonHousing Loans is Rs.20 Lakhs and Rs.10 Lakhs respectively.

The Product Basket of the Company consists of Housing Loan for Construction, Purchase of ready built house, Flats and Apartments Under Construction and Finished ones, Repair, Renovation and Upgradation including Extension of the existing units, Site Loans, Composite Loan for Purchase of Site and Construction there on, Loans for Urban and Rural Housing, Affordable Housing Loan-Urban, Affordable Housing Loans-Rural, Loans for purchase/construction/repairs of individual houses/flats upto 10 lakhs to borrowers who are getting salary by cash-IHL (Cash Salary) Scheme etc., and Non Housing Loans like mortgage loans, personal loans to existing customers, loans for commercial property, loans for rent receivables, I-Secure Loans for CFHL Customers etc.

Lending Mix

90% of Loan Book constitutes Housing Loans and 10% constitutes Non-Housing Loans, of which salaried comprises 73% and Self Employed 27%.

Deposit Schemes

CFHL is one of very few HFCs licensed by NHB/RBI to accept Public Deposits. CFHL accepts two types of deposits viz; Fixed and Cumulative Deposits. These schemes are designed by CFHL to cater to the needs of the common man. Senior Citizens are offered 0.5% higher ROI than the Card Rate for Deposits. Minimum Deposit amount for Fixed Deposit Scheme is Rs.2 Lakh with option for drawing interest Quarterly, Half Yearly and Yearly Periods and Rs.10 Lakh for Monthly Interest Payment. The minimum Deposit Amount under Cumulative Deposit is Rs.20000/-, interest is compounded quarterly and paid on maturity along with the Principal.

Funding Mix

CFHL borrows term loans, credit lines from Banks, refinance from National Housing Bank, Money market instruments like Non-convertible debentures (NCDs), Commercial Papers (CPs) and Deposits from retail market for funding its lending. As on 31st March 2021 the borrowing of the Company stood at Rs.19292 Crore.

Deposits 442 Crore
NHB 3955 Crore
Market 4994 Crore
Bank 9902 Crore

The sound financial strategy adopted by the Company in terms of a prudent funding mix has always ensured that liquidity levels are comfortable. The cost of funds is continuously monitored for effectiveness and it has consistently been brought down in several quarters. Though there were liquidity challenges in the market, the Company managed liquidity position well.

Ratings

A. For Deposits: MAAA with a stable outlook, highest credit- quality rating assigned by ICRA

B. For Borrowing from Banks: CARE AAA (Outlook Negative) IND RA/AA + (Outlook Stable)

C. For Debentures: (i) Secured NCD: ICRA AA+ (Outlook Stable)
CARE AAA (Outlook Negative)
(ii) Unsecured NCD: CARE AAA (Outlook Negative)
indra aa (Outlook Stable)
D. For Commercial Paper : ICRA A1 +
CARE A1 +

Risks and Concerns

As risk is an integral part of business, CFHL manages various risks like Credit Risk, Operational Risk, Market Risk and Liquidity Risk prudently with the help of standard procedures, systems and guidelines.

Credit Risk arises on account of default in payment of instalments and is inherent in any lending activity. Reduction in salary or job losses may lead to defaults.

Credit Risk is managed by sound credit norms and a pragmatic credit policy. All new proposals undergo the Credit Appraisal Process which involves a comprehensive Credit Risk assessment standardized procedure for an in-depth analysis of related subjective and objective information of each borrower for correctly gauging their individual creditworthiness. This is most essential for lending. The Company uses various credit assessment agencies like the Credit Information Bureau of India Limited (CIBIL), Experian etc. and the Central Registry of Securitization Asset Reconstruction and Security Interest of India (CERSAI) to assess the potential risk of the new loan underwritten.

Apart from the check while onboarding a borrower, the Risk Management Policy mandates the periodic assessment of the existing borrowers creditworthiness during the annual resetting of interest. The Offsite Transaction Monitoring System (OTMS), which is an internal monitoring mechanism, provides the necessary inputs and information regularly for corrective action on time.

Review of SMA Accounts is a continuous process for maintaining asset quality. Stressed accounts are closely monitored through preventive rather than the curative approach by periodic inspections, strengthening the inspection team for this purpose and more frequent monitoring of valuation of properties.

External factors such as inflation, deflation, demand, supply dynamics are responsible for this type of risk and are not within the control of the Company. Due to negative trend in market prices, risks like funding risk, liquidity risk and interest rate risk arise.

All loans availed after April 01, 2017 are subject to annual reset of interest rates. A proper mix of short term and long term debt is an intrinsic part of our borrowing policy along with fixed and floating rate instruments. Rate sensitive assets which can be re-priced, takes care of Interest rate fluctuations.

Insufficient funds to meet liabilities constitutes Liquidity Risk. Market liquidity conditions govern this risk of not getting adequate funds when required.

Asset-liability management tolerance levels are keenly watched, as a practical risk mitigation measure. CFHL keeps its borrowing options open and raises funds from different sources like NHB, Banks, NCDs, CPs and Deposits. This enables obtention of funds at lowest possible rates and strengthens liquidity management. ALCO committee reviews its funds regularly. The Company is thus able to have a sound liquidity position.

Covid - 19

Covid-19 has disrupted business, globally. Loss of lives, jobs, income are the consequences of the Pandemic and the entire world is still grappling with the issues that have cropped up in the aftermath of the virulent disease.

The impact has been seen in all sectors including real estate, housing etc. A revival of various economic activities was observed in the 3rd and 4th quarters.

All employees have been vaccinated and the Covid-19 appropriate behavior continues to be followed.

Asset Liability Management

The operational function for managing the balance sheet and asset liability mismatches vests with the ALCO. Cash flows in different time buckets are assessed by ALCO for analyzing behaviour of assets and liabilities and off-balance sheet items. ALCO prevents mismatch between uses and sources of funds. ALCO ensures effective functioning with limits set, for liquidity mismatch and interest rate sensitivity, review mechanisms within the limits prescribed by National Housing Bank/RBI. All the borrowing decisions of the Company are taken by the competent authorities as per the Board approved Policy on Borrowings.

The Risk Management Committee, Audit Committee and the Board of Directors periodically review the financial position of the Company.

Capital Adequacy Ratio

The Companys capital adequacy (CAR) stood at 25.46% of which tier I capital was 23.66% and Tier II was 1.79%. The minimum CAR as per regulatory guidelines is 14% and minimum Tier I capital is 10%.

The Company is required to maintain a minimum CAR of 15% and minimum Tier I capital of 10% as at 31st March 2022. The risk weighted assets of the Company stood at Rs. 11,030 cr.

Internal Audit

Internal Control for operational effectiveness and efficiency, reliable financial reporting and compliance with laws, regulations and policies, is taken care of by the Internal Audit system.

The Risk Based Internal Audit team (RBIA) was further strengthened to intensify the thrust on evaluation of branches and ensure that the functioning is in consonance with the carefully formulated and well documented policies of the Company, plug loopholes and improve customer service, which is the mainstay in an organization like ours. Details of audit reports provided by the Risk Based Internal Audit (RBIA) inspection, NHB/RBI, Sponsor Bank as well as the internal and external Auditors of branches are placed before the Audit Committee of the Board for review. The reports of standalone "Application audit of IT systems" by the IT auditors and special audit for evaluating efficiency of existing internal control systems are reviewed by the Audit Committee periodically. The operations and performance of the audit department is reviewed by the Audit Committee.

The Board of Directors scrutinize and review the Risk profile of the Company, KYC/AML compliances, legal compliance report, ALM at quarterly intervals and compliance of fair practice code, customer complaints at periodical intervals as per the regulatory guidelines. The critical analysis/review of the various policies of the Company is done by the Board Committees prior to approval by the Board.

Asset Quality

Asset Quality is one of the most crucial aspects of an organization, which determines its financial soundness and health.

The Loan Assets of CFHL are administered by the Management with significant time, energy and resources, spent on the same. The critical aspect of reviewing a loan portfolio with regard to borrower default under contractual agreements of payment is undertaken with focus and due diligence. The factors responsible for default are reviewed within the context of any local and regional conditions that adversely affect the Company performance. The adequacy of loan appraisal standards, risk identification practices, reasons resulting in NPAs, existence of asset concentration, timely identification of delinquency and collections, adequacy of internal controls and MIS, the nature of credit documentation are all meticulously verified at various levels for initiating proper and timely action.

The Company has a robust recovery mechanism to contain NPAs, supported by SARFAESI Act. Relentless follow up both at the branch and Central level, significantly improve collection figures.

As on March 31, 2021, the Gross NPA stood at Rs.201.91 Crore (0.91%) as against Rs.157.13 Crore (0.76%) during the previous year.

Provisioning for Loans

Being a housing finance company, the guidelines given by the National Housing Bank (NHB)/RBI on Prudential Norms on Asset Classification and provisioning requirement have to be followed. The Company provides for impairment of financial assets on the basis of the Expected Credit Loss Model or the Prudential norms of NHB/RBI whichever is higher.

Financial Performance

(Figures in Rs. crores) FY 2020-21 FY 2019-20 Change
Revenue 2018.43 2030.45 -0.59%
EBITDA 1835.48 1871.97 -1.95%
EBIT 1825.91 1862.50 -2.00%
PAT 456.03 374.41 21.80%
EPS (in Rs.) 34.25 28.25 21.24%

PAT margin has improved from 18% in FY 2019-20 to 23% in FY 2020-21.

Financial Ratios

Ratio FY 2020-21 FY 2019-20 Change
Interest Coverage Ratio 1.51 1.39 0.12
Debt Equity Ratio 7.39 8.72 -1.33
Operating Profit Margin (%) 33.99 28.20 5.79
Net Profit Margin (%) 22.59 18.44 4.15

Net Interest Margin

Net interest margin for FY 20-21 was 3.88% as compared to 3.52% in the previous year.

Interest Spread

The average yield on loan assets during FY 20-21 was 9.49% pa compared to 10.23% in the previous year. The average cost of funds was 6.71% pa as compared to 7.78% in the previous year. The spread on loans over cost of borrowings for FY 20-21 was 2.78% pa as against 2.45% in the previous year.

Cost to income ratio

The Company is constantly working on optimising cost and its cost to income ratio was 15.33% for FY 20-21 as compared to 15.68% during the previous year.

CAR & DER

The Capital Adequacy Ratio of the Company as on March 31, 2021 was at 25.46% which was well above the regulatory requirement of 15%. As per Regulatory norms the Company can borrow 12 times of Net Owned funds. The Leverage Ratio is 7.39 as on March 31, 2021 and there is adequate room to borrow.

Debt Equity Ratio

Human Capital

Human capital is very critical for the success of any organisation. CFHL has passionate, dedicated and loyal employees which form the Companys core strength. Our employees comprise an optimum blend of confident, energetic and enthusiastic youngsters on one hand and mature, experienced and perceptive seniors on the other hand.

We are what we do repeatedly. Excellence then, is not an act, but a habit". Can Fin sets store by this philosophy and lays heavy emphasis on the professional and personal welfare of the staff. Continuous learning is stressed upon in the human resource policy to meet the expectations of the management and to fructify the ambition and aspirations of employees. Several orientation and training programmes are conducted to motivate the staff and help improve efficiency and job proficiency. Several staff welfare measures are implemented to take care of employee interests, which in turn improve productivity.

Employee loyalty and retention are important factors for progress. To attract, hire and have the best available talent, the Company provides equal employment opportunities and the best working conditions.

The Company recruitment strategy is to hire skilful people with right and positive attitude. Attrition levels are low, reflecting a fairly good job satisfaction index.

As of March 31, 2021, the total employee strength of the Company stood at 887. Total assets per employee as at March 31, 2021 stood at Rs.25.42 Crore as compared to Rs.25.07 Crore in the previous year.

IT and Security

Data of the Company is a valuable asset and it is the responsibility of the Company to ensure safety and security of the same. Safeguarding of such data and IT Infrastructure from any cyber threat is accorded top priority.

Our IT & IT Security policy, Cyber Security Policy and Cyber Crisis Management plan includes detailed directions to ensure the protection of business information at all levels.

Business Continuity Plan has ensured that critical business functions were available during lockdown. The Company undertakes vulnerability assessment and penetration testing regularly to test and improve the implemented control measures.

The operations of all the branches and the Registered Office are linked through a core-banking platform (Integrated Business Suite).

Segment wise Reporting

Segment has been identified in line with the Accounting Standard on segment reporting, considering the organization structure as well as the differential risk and returns of these segments. The Company is exclusively engaged in the Housing Finance business and revenues are mainly generated from this activity.

Related Party Transactions

CFHL maintains an arms length relationship with related parties. The Companys detailed policy on related party transactions is uploaded in the Companys website for the information of all the stakeholders. The related party transactions with details are furnished in the Note forming part of the accounts. All related party transactions are approved by the Audit Committee or Board or members at a general meeting, as applicable.

Corporate Social Responsibility

The Company is committed to Corporate Social Responsibility measures. In FY 2020-21, the CSR activities encompassed the promotion of education, including special education, procurement of educational tabs, water filters etc., for Government schools, construction of class room blocks for schools, renovation of anganawadis, Scholarships for under privileged, Scholarships were awarded for girl child education, and to special, differently abled students for pursuing higher education, basic equipment to differently abled old and homeless destitutes, construction of library building, toilets etc.

The Companys CSR measures also give a thrust to healthcare by donating advanced medical equipment and ambulances to Hospitals. The Company has extended its CSR support for the construction of a Fitness cum sports centre for tribal students. The Company has also contributed for nutritional expenses, procurement of basic Fixed assets for old age homes, orphanages and residential homes for differently abled people.

Contribution to Prime Ministers Citizen Assistance and Relief in Emergency Situations Fund (PM CARES) and Karnataka State Disaster management Authority during COVID-19 pandemic to provide relief to those affected by any kind of emergency or distress situation like COVID-19, has also formed part of its CSR activities.

During the year under review, a total of Rs.11 crores has been spent towards CSR activities undertaken by the Company and Rs.1.73 crores has been sanctioned and will be disbursed during the current Financial Year.

Prospects and Plans of the Company

After the upheaval following the outbreak of Covid-19, which afflicted the entire populace across the country from March 2020 onwards, the post Pandemic phase has begun, following containment measures and a massive vaccination drive. The situation is improving, markets are opening up, there is revival of different sectors and businesses, mobility issues have been resolved to a large extent with the gradual ease of restrictions and there is optimism that the economy is poised to grow.

In the real estate sector and housing finance arena, it is anticipated that demand will spiral upwards and aid business growth. Can Fin Homes will pick up the gauntlet to increase growth in lending and ensure to increase the number of home owners. The margin of difference between the bank rates and our rates has reduced and is bound to help us increase volumes.

The cost of funds will be perpetually monitored and will be aggressively brought down to enhance our profitability parameters. Thrust on collections will also be an ongoing exercise and our focus on Asset Quality will not waver and maintenance of the same will be an ongoing endeavour.

Notwithstanding the deadly second wave of COVID-19 that led to severe economic repercussions in the months of April and

May, signs of recovery for demand in residential real estate were visible in June. Despite the slump during April and May, the demand for housing in June21 rebounded to pre-covid levels. The intermittent lockdown due to the second wave and the continuance of Work-From-Home (WFH) policies ensured a rise in demand for 3BHKs and above as home buyers are looking to upgrade for the need of an extra room to suit the requirement of home-office.

Signs also suggest that the momentum gained in the last six months will continue across both supply and demand, especially due to the emerging needs of consumers for large size houses and all-time low interest rates. However, caution is required given the resurgence of COVID cases in the country and threats of another streak of lockdowns. The future of the sector is tied to speedy vaccine drives and completion of infrastructure projects like the metro and major highway projects.

Cautionary Statements

This document contains statements about expected future events, financial and operating results of Can Fin Homes, which are forward looking. By their nature, forward looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is a significant risk that the assumptions, predictions and other forwardlooking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward looking statements as a number of factors could cause assumptions, actual future results and events to differ materially from those expressed in the forward-looking statements.

Accordingly, this document is subject to the disclaimer and qualified in its entirety by the assumptions, qualifications and risk factors referred to in the managements discussion and analysis of Can Fin Homes Annual Report, 2020-21.

For and on behalf of the Board of Directors
Sd/-
Place: Bengaluru Venkata Prabhakar
Date : July 31, 2021 Chairperson