Repco Home Finance Ltd Management Discussions.


Global economic trends were characterised by Trade barriers (Tariff as well as Non Tariff) and a slew of protectionist measures by major economies in particular by USA and China resulting in a build of trade tensions between the World‘s Largest economies. These pose significant downside risks to the global trade prospects.

According to the Central Statistics Organisation (CSO) and the International Monetary Fund (IMF), India has emerged as the fastest growing major economy in the

World. Further the report tips India to become one of the top three economic powers in the world over a horizon of about 15 years, the argument being bolstered by Strong Democratic Framework and partnerships.

Further the CSO estimated that India‘s GDP growth for FY 2017-18 at 6.6% and the same is estimated to grow at 7.3% in 2018-19. The relatively muted GDP growth was largely attributable to disruptive impact of the implementation of the Goods and Services Tax (GST) and the overhangs of the demonetisation (resulting in a beginning of a paradigm shift towards cashless transactions through debit/credit cards, mobile / internet banking/ e-wallets).

The Real Estate (Regulation and Development) Act, 2016 which seeks to ensure that the real estate sector operates in an efficient and transparent manner and protect the interests of the Consumers (as stated in the Acts preamble) came into effect on May 1, 2017. The implementation has been bogged down in various states due to reasons such as certain states are yet to frame the rules stipulated under the said Act, appointment of a permanent regulatory authority and setting up of an online portal etc. A significant prescription of the Act requires developers to park 70% the funds received for a project in a separate escrow account. This measure seeks to curb the practice of diversion of funds which ultimately results in ensuring that project delays are eliminated.



Government‘s Initiatives

The housing demand in the real estate sector is quite robust largely due to the growing population (Growth at 1.3% per annum) in India which is complimented by acute housing shortage of 40 million houses (both urban and rural), favourable demographics, rise of concept of nuclear families, migration to urban areas, fiscal benefits, rising income aspirations could lead to a further demand for another 10 million houses. Now the builders have shifted their thrust from luxury and mid-end houses to affordable housing which has received some significant impetus from the Government through its initiatives.

Housing for All 2022:

The Government of India has launched a comprehensive mission "Housing for all by 2022". The mission seeks to address the housing requirement of urban poor including slum dwellers through following programme verticals:

Slum rehabilitation of Slum Dwellers with participation of private developers using land as a resource

Promotion of Affordable Housing for weaker section through credit linked subsidy

Affordable Housing in Partnership with Public &

Private sectors

Subsidy for beneficiary-led individual house construction The Mission will be implemented during 2015-2022 and it will provide central assistance to implementing agencies through States and UTs for providing houses to all eligible families/beneficiaries by 2022.

Pradhan Mantiri Awas Yojana - Credit Linked Subsidy Scheme (PMAY-CLSS)

With an objective to expand institutional credit flow to the housing needs of urban poor, the Government of India (GoI) has launched the Credit Linked Subsidy Scheme (CLSS) under its Housing for all Mission. Credit linked subsidy will be provided on home loans taken by eligible urban poor (Economically Weaker Section/ Lower Income Group and Middle Income Group) for acquisition, construction and improvement of the beneficiaries ‘ first house. The scheme is implemented through Nodal agencies like National Housing Bank (NHB) and HUDCO. Under this scheme, Beneficiaries of Economically Weaker section (EWS) and Low Income Group (LIG) seeking housing loans from financial institutions would be eligible for an interest subsidy at the rate of 6.5 % for tenure of 20 years or during tenure of loan whichever is lower. The subsidy will be available only for loan amounts upto Rs 6 lakhs and loans beyond Rs. 6 lakhs, if any, will be at nonsubsidized rate. Similarly, Beneficiaries of Middle Income Group (MIG) seeking housing loans from financial institutions would be eligible for an interest subsidy at the rate of 4 % or 3 % for tenure of 20 years or during tenure of loan whichever is lower. The subsidy will be available only for loan amounts uptoRs9 lakhs or Rs 12.00 lacs respectively and loans beyond the limits, if any, will be at nonsubsidized rate.

Our Company RHFL being a prime lending institution has signed MoU with NHB for successful implementation of the scheme.

The aforesaid Government Initiatives stimulate demand for housing and these serve as a fillip to the sector.

Underpenetrated Market:

Going by the metric of mortgage to GDP ratio, the Indian Mortgage Market is underpenetrated relative to global peers and significant growth is expected on this front translating into good growth rates going forward.


Notwithstanding that the growth in population may be showing a decelerating trend, the rapid urbanization in the country is showing a steady growth reflecting favourable prospects for the sector.

Favorable Demographics:

About 67% of our countrys population is comprised of persons who are in the mid-thirties age group and given that house purchase decisions are made roughly during this period presents a large opportunity for the sector.

tax Benefits:

Home loan principal repayment upto Rs. 1.5 lakhs (Section 80C of the Income Tax Act) and interest payment upto Rs. 2 lakhs are eligible for tax deduction. First time affordable home buyers will receive an additional deduction of Rs. 0.5 lakhs (Section 80EE of the Income Tax Act).


Economic slowdown and return of high interest rate scenario could adversely impact the demand for housing and housing finance

Companys ability to raise resources at competitive rates in an adverse scenario

Companys ability to hire and train manpower for achieving companys growth objectives outside southern India

Sizeable exposure to non-salaried segment could exert pressure on the companys asset quality under unfavourable economic conditions

Inability of government to push through the envisaged reforms could result in significant opportunity cost


There are abundant opportunities to tap in the affordable housing space the company is present in. More so, in the backdrop of governmental focus on affordable housing

For the first time ever we have a situation where supply side bottlenecks in the affordable housing space have been taken care of by giving financial sops to developers

Focus on tier II and tier III cities and peripheral areas of tier I cities results in less competition from banks and other HFCs leading to possibility of high advances growth

The company has over the years gained significant insights in underwriting the risks involved in lending to non-salaried class, which is highly underpenetrated, relatively less competitive and offers higher yields

Proven track record of containing loan losses at very low levels

Low operating cost structure 3-5 employees per branch on average, lower rentals in tier 2/3 cities, minimum commission expenses, etc.

Strong Tier 1 capital position; CAR 23.04%

Expanding footprint sowing the seeds for the future


Over 90% of the loan book coming from four southern states points to existence of significant concentration risk

High exposure to Tamil Nadu increases companys susceptibility to state specific factors.

Significant exposure to non-salaried segment can cause problems if a macroeconomic factor affects the livelihood of self-employed segment of the population.

Credit rating of AA assigned by CARE Ratings and AA - assigned by ICRA constrain companys ability to optimize cost of capital market borrowings in an environment where average marginal cost of lending rate of banks is higher than interest rates prevalent in capital market and money market

Higher NPAs and lower provision coverage vis-a-vis the industry


Going forward, loan book growth of the company would be driven by its branch expansion strategy with focus on customer base expansion, ability to deepen its presence in existing geographies, ability to quickly understand credit cultures of new states so it can venture into new territories.

Continue to target markets that are relatively under penetrated (lower competition, better yields)

Continue to maintain an optimal blend of non- salaried and salaried loans in the loan book

Maintain the non-housing book at the present level with renewed focus on small ticket loans

Deepen penetration in southern region markets and gradually expand into other regions/states on a contiguous basis.

Diversify sources of borrowings and effectively manage borrowing cost. The company has untapped avenues in the form of securitization of loan assets, external commercial borrowings.

Exercise strict control on operating costs and improve employee productivity

Give strong focus on improving the asset quality

Innovative marketing strategies including deployment of Direct Selling Agents


The company is present in 2 segments – individual home loans and loans against property (LAP). The company provides a variety of tailor-made home loan products to individual borrowers in both salaried and non-salaried (self employed professional and self employed non-professional) segments to suit various requirements

For construction or purchase of house property

Repco Super Delight Loan

Repco Super Premium Loan

Repco Rural Loan

Dream Home Loan

Super Loan*

Fifty Plus Loan

NRI Housing Loan

For Repair and Renovation/ extension of existing property

Home Makeover Loan Super Loan* Repco Rural loan*

For purchase of plots

Plot Loans

For loans against property

Prosperity loan New Horizon Loan

Commercial Real Estate (CRE) Loan * Overlapping multi-purpose products


160 points of presence comprising of 131 branches and 29 satellite centers; presence in 11 states and a union territory; focus on direct sourcing During the year, the company converted 3 satellite centers into branches, opened 3 new branches and 1 new satellite center, taking the total network to 131 branches and 29 satellite centers. The company didnt venture into a new state during the year with a view to consolidate in existing regions. The retail network is spread across states of Tamil Nadu, Karnataka, Andhra Pradesh, Telangana, Kerala, Maharashtra,

Odisha, West Bengal, Gujarat, Madhya Pradesh,

Jharkhand and the Union Territory of Puducherry.

State-wise retail network Mar-18
Tamil Nadu 79
Andhra Pradesh 15
Telungana 7
Gujarat 9
Karnataka 21
Kerala 9
Maharastra 13
Odisha 2
Puducherry 1
West Bengal 2
Madhya Pradesh 1
Jharkhand 1
total 160

The companys primary sources of customer acquisition continue to be loan camps, customer walk-ins and referrals. Of these, loan camps contribute to over 60% of incremental originations. Manager of every branch conducts a loan camp once in every 2-3 months where, a primary assessment of customer documents is done and an in-principle sanction given. The customer then approaches the branch for further processing of his/ her loan. The branch personnel act as single point of contact to customers and are responsible for sourcing loans, carrying out preliminary checks on the credit worthiness of potential customers, providing assistance in documentation, disbursing loans and monitoring repayments and collections. This way the company ensures that there is no conflict of interest and level of accountability is very high. The compensation structure of branch personnel is designed in such a way that 30% of monthly compensation is variable and is paid out based on the performance of employees in, among other things, disbursement growth, loan book growth and collections.

The company employed direct sales agents (DSAs) in some branches of Tamil Nadu, Maharashtra and

Gujarat during the year and is open to using the DSA model in new and existing geographies if it makes economic sense. The share of DSA driven business continues to be less than 5% of total incremental business.


The company reported satisfactory performance and demonstrated its ability to create value for its stakeholders even during uncertain times. The loan book grew at a decent rate given the macroeconomic conditions. However, profitability metrics remained robust even as the asset quality deteriorated in response to external shocks.

Income from operations during the year stood at Rs

1,105.43 Crs up 6% from last year

Other Income stood at Rs.2.30 Cr

Net interest income was Rs 428.63 Crs, up 16%

PAT was Rs. 206.12 Crs, up 13% from the previous year.

Cost to Income ratio stood at 17%.

Sanctions and disbursements were Rs. 3,079.26 Crs and Rs. 2,806.51 Crs respectively

Loan book increased to Rs 9,856.78 Crs, registering a growth of 10% year on year

GNPAs stood at 2.87% and NNPAs at 1.29%, resulting in a PCR of 55.61%

The average yield earned on loan assets during the year was 11.60%

The average cost of borrowings during the year was 8.36%

The interest spread earned during the year expanded to about 3.24%.


The companys business activities expose it to a variety of risks including credit risk, operational risk and interest rate risk. Risk management forms an integral part of companys business. The objective of the Companys risk management system is to measure and monitor various risks and to implement policies and procedures to mitigate such risks. The company recognizes that identification of risk is most important function in managing and mitigating the risk. The company identifies the risks in each function / activity. In this process, inputs from all the departments are taken and their viewpoints are considered in totality to do a meaningful analysis for the organization. The company analyzes risks in terms of consequence and likelihood of its impact. The analysis considers the range of potential consequences and likelihood of those consequences to occur. The company recognizes that risk cannot be eliminated while doing business. In fact, risk has to be leveraged to the potential extent. Taking various factors such as strengths, weaknesses, opportunities and threats, the company assesses and arrives at the risk appetite to maximize the benefits. It is imperative that the level of risk has to be measured and evaluated to take calibrated measures to manage the risk at the appropriate level.

Rigorous credit appraisal keeps credit risk in check

The 2-tier credit appraisal process – at branch and head office level – ensures high level of checks. A preliminary appraisal is performed by the branch manager, branch-level valuers and lawyers. This again is revalidated at the corporate office level before sanction. Each borrower is rated based on a dynamic credit rating model comprising of 18 parameters carrying different weights. The interest chargeable is linked to the credit score. The company maintains a conservative loan to value (LTV) and documented installment to income ratio (IIR) on the loans. The average LTV was 59% at the forced sale value and average documented IIR was 35% as on March 31, 2018.

Operational risk is mitigated using various tools

An ongoing monitoring of loan accounts is ensured along with inspection of each branch by an internal inspection team and risk based audit by an external audit firm at regular intervals. Concurrent audit is done at key branches identified in terms of loans outstanding. Senior company officials also make surprise visits to branches to check if all processes and best practices are followed.

To improve operational efficiency, quarterly Board level discussions are held on reports shared by recovery officers, external audit firm and vigilance officer, who oversee monitoring of companys offsite transactions and Know Your Customer related compliance. New learning is put to use immediately.

Performance review of all branch personnel is undertaken twice a year by senior management team. It is a platform where performers are rewarded in front of all employees and others are motivated to do their job efficiently.

Interest rate risk

The Company has formulated an asset liability management (ALM) policy, which lays down mechanisms for assessment of various types of risks and altering the asset-liability portfolio in a dynamic way to manage such risks. There is an ongoing monitoring of the maturity profile of assets and liabilities by Asset Liability Management Committee (ALCO) - a strategic decision making body constituted by the Board, to mitigate the risks arising from cash flow mismatches, comprising of the Managing Director, Executive Director and Chief Financial Officer of the Company.

At any point in time, an optimal balance between short term and long term borrowings is maintained in sync with extant asset and liability profile. Most of the long term borrowings and on-lending happen at floating rates, which act as a hedge in times when interest rate volatility is high.


The company has diversified its sources of funding across five verticals viz. refinance from NHB, long-term bank loans, working capital loan from Repco Bank, non-convertible debentures (NCDs) and commercial papers (CPs). As of 31st March, 2018, 54.51% of companys borrowings were from banks, 11.58% by way of refinance from the National Housing Bank (NHB), 7.65% from Repco Bank, 16.43 % from NCDs and 9.83% by way of CPs. In order to meet liquidity requirements, the company took advantage of favorable rates available in the money market by issuing CPs to the tune of Rs.2,350 Crs during the financial year. The total outstanding borrowings stood at Rs. 8,137.01 Crs as against Rs. 7,560.43 Crs in the previous year.

Going forward, if the prevalent low interest rate scenario continues, the share of NCD and CP borrowings is likely to go up to be offset by declining share of bank borrowings.

As of March 31, 2018, 34.69% of overall borrowings were on fixed rate basis and 65.31% floating rate basis. The average tenor on borrowings was 7.7 years.

Source (Rs.Crs) Rs. Crs %
National Housing Bank 942.31 11.58%
Repco Bank 622.68 7.65%
Commercial Banks 4,435.02 54.51%
Non-Convertible Debentures 1,337.00 16.43%
Commercial Papers 800.00 9.83%
Total 8,137.01 100.0%


The companys short term and long term debt facilities are rated by two rating agencies – CARE Ratings & ICRA.

In FY18, credit rating agency CARE Ratings maintained the AA rating assigned to companys term loan and non-convertible debenture facilities. Companys commercial paper facility continues to enjoy A1+ rating by CARE Ratings. Rating agency ICRA maintained AA- rating assigned to companys term loan and non convertible debenture facilities and A1+ assigned to companys commercial paper facility.


RHFLs capital adequacy ratio (CAR) as at March 31, 2018 was 23.04% consisting entirely of Tier-1 capital. Over the medium term, the company has plans to securitize its loan assets and issue Tier-2 bonds (as and when required) to maintain its capital adequacy to support its growth ambitions.


Over the years, the company has developed robust risk management systems & processes in all areas of operations like loan origination, credit appraisal, loan disbursement and collection & recovery. Cumulative write down of only about Rs. 36 Crs (including assets technically written off) till date bears testimony to the aforementioned statement. However, given the tilt of the loan book towards the unsalaried segment and focus on Tier 2 & 3 areas of the country, the asset quality of the book exhibits volatility intra-year. The ebb and flow of asset quality showed an aberration in FY17 owing to a Tamil Nadu State specific factor (interpretation of Madras High Court order pertaining to registration of unapproved plots) and the macroeconomic impact of the landscape altering demonetization drive.

Gross non-performing assets (GNPA) and net non-performing assets (NNPA) are 2.87% (Rs. 282.65 Crs) and 1.29% (Rs.125.48 Crs) respectively as on 31st March 2018 as compared to 2.60% (Rs. 232.8 Crs) and 1.39% (Rs. 122.73 Crs) in the previous year. The provision coverage ratio stood at 55.61% at the end of FY18.

As on March 31, 2018, RHFL had 57.10% loan book exposure to non-salaried segment (consisting of professionals and non-professionals). Generally, income profile of the non-salaried segment tends to be lumpy which leads to significant quarter-on-quarter volatility in NPAs. However, such volatility in NPA profile is not representative of the true asset quality given conservative underwriting policies of the Company.


The Company has investments in the equity of unlisted associate company, Repco Micro Finance Limited to the extent of Rs.15.60 Crore (1,56,00,000 equity shares of Rs.10/- each).


Ratio of income and expenses to average loan assets (ROA Tree)

Metric FY16 FY17 FY18
Net interest margin 4.4% 4.4% 4.6%
Other income 0.5% 0.4% 0.3%
Non-interest expenses 0.9% 0.8% 0.8%
Credit cost 0.6% 0.6% 0.7%
Income Tax 1.2% 1.2% 1.2%
Return on assets 2.2% 2.2% 2.2%


Particulars Units FY13 FY14 FY15 FY16 FY17 FY18 CAGR
Outstanding Loan Book Rs mn 35,448 46,619 60,129 76,912 89,399 98,568 23%
Sanctions Rs mn 12,848 18,225 23,999 30,828 28,758 30,793 19%
Disbursements Rs mn 11,674 17,153 21,812 28,512 26,424 28,065 19%
Income from Operations Rs mn 4,057 5,342 6,922 8,801 10,442 11,054 22%
Net Interest Income Rs mn 1,256 1,908 2,373 3,039 3,678 4,286 28%
Profit after tax Rs mn 800 1,101 1,231 1,501 1,823 2,061 21%
Networth Rs mn 6,233 7,193 8,102 9,512 10,866 12,535 15%
Debt Rs mn 30,647 39,020 51,044 65,379 75,604 81,370 22%
Net interest margin % 4 4.7 4.5 4.4 4.4 4.6
Gross NPA % 1.5 1.5 1.3 1.3 2.6 2.9
Net NPA % 1 0.7 0.5 0.5 1.4 1.3
Return on assets % 2.5 2.7 2.3 2.2 2.2 2.2
Return on equity % 17.4 16.4 16.1 17.7 18.2 17.6
CRAR % 25.5 24.5 20.3 20.8 21.3 23.04


The Company has put in place organized and effective internal control systems. The company gets internal audit done by an external chartered accountant firm twice every year. Besides, efforts are made to carry out a full-fledged inspection of every branch once in a year by the corporate office inspection team. There are stringent systems in place to ensure that the assets and properties of the Company are utilized in the best interest of the Company. The internal control systems and internal auditors reports are reviewed by the Audit Committee of the Board at regular intervals so as to ensure transparency and proper compliances.

information technology

All branches of the company are connected wirelessly with the head office at Chennai. One of the USPs of the company is quick processing of loan applications, which is facilitated by the companys robust IT infrastructure that ensures all borrower specific documents are transferred online. Automated SMS alerts are also sent to borrowers to remind them of upcoming payments so they can ensure availability of sufficient funds in their bank accounts. The companys ability to operate and remain competitive depends in part on its ability to maintain and upgrade information technology systems and infrastructure on a timely and cost-effective basis, including ability to process a large number of transactions on a daily basis. An Information Technology audit is conducted every year via an external agency to ensure safety of protocols and data.


The Company believes in attracting, nurturing and retaining a qualitative workforce to accomplish its long-term objectives. To achieve this, the company provides the necessary internal and external training to keep employees updated in tune with prevailing benchmark practices in the housing finance industry. The Company provides a professional work environment and maintains healthy relations with its employees. As on March 31, 2018, the company had 785 employees on it rolls.

For and on behalf of the Board of Directors

(R. varadarajan)

Managing Director

August 13, 2018