OVERVIEW OF THE INDIAN ECONOMY
Volatility has ebbed in global financial markets and risks to financial stability from
the failure of banks in some advanced economies (AEs) in March 2023 have eased. Resolute
policy actions have stemmed the tide of confidence runs for now. Amidst the uneasy calm
that prevails, a reassessment of global economic prospects is underway. Available
projections suggest a weaker outlook for the global economy in 2023 and 2024 after the
resilience it exhibited to multiple and often overlapping shocks in 2022.
In this turbulent global economic environment, India has experienced macroeconomic and
financial stability with a steady pick-up in the momentum of growth. This reflects a sound
macroeconomic policy environment and the innate resilience of the economy which fortified
it against recurring global shocks. India has remained among the fastest growing major
economies of the world, contributing more than 12 per cent to global growth on average
during the last five years. As inflation eases from its high reaches under the combined
impact of monetary policy actions and supply management, fiscal consolidation reduces debt
and deficit levels from pandemic-induced highs, the current account deficit remains within
sustainable levels; macroeconomic stability is getting entrenched. A sustained recovery in
discretionary spending, particularly in contact intensive services, restoration of
consumer confidence, high festival season spending after two consecutive years of COVID-19
induced isolation and the governments thrust on capex provided impetus to the growth
momentum. In the second half of the year, however, the pace of year-on-year growth
moderated because of unfavourable base effects, weakening private consumption demand
caused by high inflation, slowdown in export growth and sustained input cost pressures.
(Source : RBI Annual Report 2022-23)
INDIAN ECONOMY FUTURE OUTLOOK
Global growth is expected to slow down in 2023 and may remain subdued in the medium
run. As per the IMFs World Economic Outlook (WEO) released in April 2023, global growth
for 2023 at 2.8 per cent is likely to be followed by the medium-term growth plateauing at
3.0 per cent. Domestic economic activity does face challenges from an uninspiring global
outlook going forward, but resilient domestic macroeconomic and financial conditions,
expected dividends from past reforms and new growth opportunities from global geo-economic
shifts place India at an advantageous position. Taking into account softer global
commodity and food prices, sustained buoyancy in contact-intensive services, the
governments continued thrust on capex, higher capacity utilisation in manufacturing,
double digit credit growth, receding drag on purchasing power from high inflation and
rising optimism among businesses and consumers, real GDP growth for 2023-24 is projected
at 6.5 per cent with risks evenly balanced.
The outlook for services sector remains positive in 2023-24. Real estate and
construction have witnessed a revival post-pandemic and are expected to perform well in
this year also as both demand for and supply of housing remain buoyant. (Source: RBI
Annual Report 2022-23)
HOUSING FINANCE INDUSTRY OVERVIEW
Pent-up demand and robust consumer sentiment for home ownership in the aftermath of the
pandemic underlay strong recovery in the residential housing sector in 2022-23. In 2022-
23, housing launches improved consistently in terms of completed projects after two years
of intermittent shutdowns. Housing sales picked up in H1:2022-23 and recovered in Q4 after
briefly losing momentum in the third quarter. As launches surpassed sales, unsold
inventory increased although it remained below pre-pandemic levels.
The residential real estate market in India had astounding progress in 2022, setting
new sales records of 68% YoY, further demonstrating the industrys prominence as one of
Indias fastest-growing industries. After two years affected by COVID, Tier 2 and Tier 3
cities have arisen as fresh major real estate trends in 2022, and the real estate market
has set unprecedented benchmarks which continued its growth momentum from 2021 amid the
global slowdown. The growing awareness of home ownership and the affordable housing
schemes has led to significant growth in the affordable housing segment.
An increase in earning potential, a need for a better standard of living and the
growing base of aspirational consumers and their lifestyle changes have led to substantial
growth in the sector.
With suited economic growth, the premium housing segment will also witness higher
demand in the years to come. Reforms in stamp duty, the introduction of affordable rental
housing complexes and government-aided schemes will boost this asset class while providing
relief to the many who do not have access to it. The real estate sector is going to
continue on its journey of long term growth as we see a continuous rise in GDP per capita,
larger disposable incomes, growing urbanization.
The increased repo rate could impact residential sales to some extent, particularly in
the affordable segment but in mid-term, it will have no impact. The increase in cost of
borrowing will have a direct impact on home buyers, leading to higher EMIs and decreased
affordability.
With the rise in the repo rate again in response to an inflation goal, the cost of
borrowing for housing finance businesses would rise, resulting in higher home loan
interest rates for borrowers. It will raise the cost of taking out mortgages and
purchasing properties. This may result in a decline in home demand. Furthermore, an
increase in interest rates will make it more difficult for consumers to qualify for
mortgages, lowering demand even further. The Union Budget 2023-24 is remarkable in many
ways, especially in terms of the real estate sector. PMAY allocation of ^79,000 crore is
also a good approach for affordable housing. The PMAY allocation increase would boost
demand for home loans from the economically weaker and middle income segment.
Despite the risks associated with this sector, the general outlook seems positive.
Investors, builders, the Government, and individuals seem to believe that the industry
will continue to see an upward graph.
The real estate sector in India is projected to expand significantly, reaching a market
size of US$ 1 trillion by 2030, a substantial increase from its size of US$ 200 billion in
2021. Furthermore, the sector will contribute approximately 13% to the countrys GDP by
2025.
It is estimated that there is currently a shortage of approximately 10 million housing
units in urban areas. To accommodate the countrys urban population growth, an additional
25 million units of affordable housing will be required by 2030.This highlights the
significant demand for housing and the expansion potential that the Indian Real Estate
sector holds over the next 10 years.
The rapid pace of urbanisation and affordable mortgages has spurred growth of the
Indian housing finance market that is expected to grow at a compound annual growth rate
(CAGR) of 20.58 per cent during the period 2022- 27. In the year 2021, it was witnessed
that millennials and young borrowers are in need of urban accommodation and are a
potential consumer base for home loans. They are almost accountable for 27 per cent of the
borrowers. Demand for housing is somehow directly proportional to income and the
affordability of homes. Changing lifestyles and labor mobility towards metro cities have
increased the demand for housing loans. The major factor that is contributing to the
gained traction in the industry is increased urbanisation or quasi-urbanisation. NBFCs
play an important role in housing finance in India, providing financing to both individual
borrowers and developers.
According to reports, 13 per cent of Indias GDP will be generated by the housing
industry by 2025. Also, it is predicted that the real estate sector will be 65,000
crores by 2040. The top seven Indian cities purchased more than 1700 acres of land in the
previous year. Additionally, between 2017 and 2021, foreign investors spent US$10.3
billion on commercial real estate. The government has taken several measures to promote
and enhance the industry. The real estate sector can also make use of smart city projects,
that is making 100 smart cities as assigned by the Ministry of Housing and Urban Affairs.
These include an interest subsidy scheme for middle-income home buyers and an
infrastructure status for affordable housing projects.
Despite the pandemics undodgeable challenges on the industry, it finds the way to
flourish along with government support for the major development in the housing sector.
Post-pandemic, economies across the globe are fighting to come back and offset the
negative impacts of the pandemic. However, it remains to be seen that the measures taken
will be enough to revive the struggling housing market. (Source: RBI Annual Report
2022-23)
KEY CHALLENGES FACED BY HFCS
Rising interest rates, reduced cash flow of borrowers on account of the high inflation
rate, increasing cost of construction, leading to both a rise in property costs and a
slowdown in new inventory launches and halting of the governments credit-linked Subsidy
Scheme (CLSS) are some of the challenges facing this segment. The construction costs for
the housing sector have increased sharply with a steep increase in the prices of various
raw materials, including cement, steel and concrete along with higher labour costs. This
has resulted in an increase of 20-25 per cent across key markets over a base construction
cost of Rs 2,000-2,500 per square feet, as was seen in 2019, leading to margin pressure
for developers. While developers have not been able to pass on the complete cost increase,
there remains a near- to medium-term upward pressure on real estate prices for buyers. The
high inflationary environment, coupled with high-interest rates, is likely to affect loan
affordability for new home buyers, which could lead to a slowdown in Asset Under
Management (AUM) growth for home financiers due to a moderation in disbursements.
One of the biggest challenges facing the housing market is the increase in
unemployment. Companies are on a major spree to lay off employees. The increased
unemployment will definitely impact the housing sector. Affected people are unable to
repay their mortgages and people are hardly thinking of investing their money in
industries like housing. Although the Central Bank has taken several measures to support
the housing market, it remains to be seen whether these measures will be enough to offset
the negative impacts of the pandemic. The housing market is facing a decrease in demand
for homes. The affected economy and job market has led to a decrease in demand for homes
as people are deferring their plans to buy or invest in property. This is likely to have a
negative impact on prices and may lead to an increase in defaults and foreclosures.
SEGMENT REPORTING
The Companys main business is to provide loans for the purchase or construction of
residential units. All other activities revolve around the main business. Hence, there are
no separate reportable segments, as per Ind AS 108 dealing with Operating Segments as
specified under Sec.133 of the Companies Act, 2013. Secondary segmentation based on
geography has not been presented as the Company operates primarily in India and the
Company perceives that there is no significant difference in its risk and returns in
operating from different geographic areas within India.
RISKS AND CONCERNS
Your Company is exposed to risks such as liquidity risk, interest rate risk, credit
risk, increase in Non-Performing Assets and operational risk which are inherent in the
housing finance business e.g. take-overs of our existing accounts. Intense competition,
increase in cost of borrowing and narrowing of spread, pose a big challenge for sustaining
profitability on consistent basis. Prevailing inflationary trends will impact the
affordability of vast number of end users.
RISK MANAGEMENT
Liquidity risks and interest rate risks arising out of maturity mismatch of assets and
liabilities are managed by your Company by constant monitoring of the maturity profiles
with a periodical review of the position. Credit risks are minimized by having established
credit appraisal system in place, prescribing exposure limits, periodic review of the
portfolio. Our Company operates in the mid segment and large chunk of borrowers are in the
salary group. Your Company is having CIBIL checks, field verification, stringent legal and
technical due diligence etc. which have helped to reduce incremental delinquencies. Our
recovery mechanism is also robust supported by best use of SARFAESI Act. Operational risks
are minimized by strengthening the internal control procedures and addressing the
deficiencies reported by the internal auditors.
INTERNAL CONTROL SYSTEMS AND ADEQUACY
The Company has internal control systems which is commensurate with the size of the
operations. Internal audit checks are conducted regularly and internal auditors
recommendations are reviewed for improving systems and procedures. Your Company takes
efforts from time to time to meet the changes in business conditions along with statutory
and accounting requirements. The internal audit is carried out by independent firms of
Chartered Accountants and covers the key areas of business. There is also in house
internal audit department which is responsible for in-house internal audit activity of the
Company. The Audit Committee & Statutory Auditors are periodically apprised of the
internal audit findings and compliances and Audit Committee reviews the internal control
system.
BUSINESS SEGMENT OVERVIEW
Over the past 33 years of its existence, the Company has gained a good reputation
across the country as a reliable HFC. The Companys broad selection of loan products under
the Housing and Non-Housing category are suitable for meeting the various needs of a wide
spectrum of customers. The Companys Product Basket includes Individual Housing Loans for
purchase of new properties and resale properties, Composite Loans (Purchase of Site and
Construction), Mortgage Loans, Repair & Renovation Loan, Construction Home loan etc.
Total income for the year under review is 1,12,888 Lakh as against 1,15,640 Lakh
for the previous year. For the year under review, Profit before tax is 28,980 Lakh and
Profit after tax is 21,320 Lakh as against 23,040 Lakh and 17,357 Lakh respectively
for the previous year.
The Companys main thrust continues to be on Individual Loans. New loans approved
during the year amounted to 1,14,311 Lakh and loans disbursed during the year are
1,07,435 Lakh as against 1,16,731 Lakh and 1,13,004 Lakh respectively for the previous
year. The Retail Loan portfolio as at March 31, 2023 stood at 10,64,917 Lakh as compared
to 11,70,750 Lakh for the previous year.
CREDIT RATING
Your Company had received rating from CRISIL Limited and ICRA Limited for its various
borrowing programmes as follows:
CRISIL Rating:
• For Commercial Paper programme of 1,500 crores as A1+.
• For Fund Based Long Term Bank Loan facility of 9,100 crores as AA+ (Stable).
• For Non-Convertible Debentures Borrowing Programme of 1,505 crores AA+
(Stable).
ICRA Rating:
• For Commercial Paper programme of 1,500 crores as A1+.
• For Short Term Bank Loan facility of 1,000 crores as A1+.
• For Fund Based Long Term Bank Loan facility of 12,500 crores as AA (Stable).
• For Non-Convertible Debentures Borrowing Programme of 1,550 crores as AA
(Stable).
MARKETING
The marketing of your Companys home loan products are done through direct sales,
through Direct Selling Agents, DSTs and through channels of Subsidiary company etc.
Marketing of home loan products with a focused attention on existing as well as the
prospective customers is a constant endeavor at the Company with 71 Offices and 5
satellite offices spread across the country.
HUMAN RESOURCES/ INDUSTRIAL RELATIONS
During the year, Company has done key hiring (i.e. Sr. Vice President- Credit, Vice
President - IT, Vice President - Operations etc.) in addition to regular recruitments for
junior positions. The Company has a dedicated team of 321 Employees, who have been
contributing to the progress and growth of the Company. The manpower requirement at
Offices of the Company is assessed continuously and recruitment is conducted accordingly.
RELATED PARTY TRANSACTIONS
The Related Party Transactions with details are furnished in the Notes on Accounts
forming part of the Accounts. None of the transactions with any of the related parties
were in conflict with the interests of the Company. Transactions with related parties
entered into by the Company in the normal course of business were placed before the Audit
Committee.
DETAILS OF KEY FINANCIAL RATIOS:
| Particulars |
2022-23 |
2021-22 |
% Change |
Detail reason for change in Ratio (if Change is >25%) |
| Debtors Turnover (times) |
6.11 |
3.71 |
64.69 |
Due to increase in Insurance Premium amount, there is an increase in the commission
income thereon |
| Interest Coverage Ratio |
1.45 |
1.51 |
(3.97) |
- |
| Debt Equity Ratio (Times) |
5.38 |
6.85 |
(21.46) |
- |
| Operating Profit Margin (%) |
25.67 |
19.92 |
28.87 |
Profit before tax increased from 23,040 Lakh to 28,980 Lakh. |
| Net Profit Margin (%) |
18.89 |
15.01 |
25.85 |
Net Profit after Tax increased from 17,357 Lakh to 21,320. |
| Return on Net Worth (%) |
12.52 |
11.55 |
|
Profit for the period increased from 17,454 Lakh to 21,272 Lakh. Net Worth
increased from 1,51,082 Lakh to 169,931 Lakh. |
> Disclosure of Accounting Treatment: There is no change in the accounting treatment
in the Financial Year 2022-2023 as compared to Financial Year 2021-2022.
CAUTIONARY STATEMENT
Statements in this report describing the Companys objectives, projections,
estimations, expectations are "forward looking statements" within the meaning of
applicable securities, laws and regulations. These statements are based on certain
assumptions in respect of future events and Company assumes no responsibility in case the
actual results differ materially due to change in internal or external factors.
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