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Tuesday, Aug 20, 2002

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`Housing finance cos ready to cut rates... '

Vinson Kurian


HOUSING finance companies (HFCs) would not think twice before cutting rates lower than what the banks are offering now, if only they had the luxury of the "dirt cheap" funds that the latter have access to.

Mr N. Sowmyan, Chief Executive, GIC Housing Finance, told Business Line that "It's our unfair position vis-a-vis banks that are holding us back. My view is that banks should be able to lend much cheaper than what they are doing now''.

HFCs survive on spread alone. Unlike banks, they borrow money for onward lending. "I will be happy with a spread of two per cent. Today it hovers between 1.5 per cent and 1.6 per cent. Still I do not have to complain much''.

Instead of cribbing over the relative disadvantages, GICHF is content counting its own blessings. When asked what these blessings were, Mr Sowmyan dwelt on the core competencies of each.

"I am not commenting on the way banks do business. Only, they are meant to play much bigger roles. Especially, given the extensive training imparted to the employees and the big space available for them to ply their trade. The point is this: How long can banks carry on advancing retail loans in the denomination of a few lakhs. They would not go far, and the signs are already clear''.

Banks are more used to scenarios in which they advance loans of the order of Rs 100 crore or more to industrialists and be done with it. This way their jobs are made easy. Housing loans are purely retail loans and not everybody is cut out to do the business in the manner that it needs to be.

"Being specialised companies, the way we do business is such that the banks are not able to match. With banks, you have to wait for half-a-day before you can draw your own money. But with GICHF, I can lend you my money within an hour's time! That's the big difference. This is the reality as it obtains today''.

Mr Sowmyan said GICHF has a Rs 800-crore portfolio currently. This is taken care of by just 60 people, including himself. This makes for a Rs 13-Rs 14 crore business per person. "Can you find any other institution or bank with a better per-person business?"

Observing that he did not mind dropping names, Mr Sowmyan said Indian Bank and SBI, for instance, were so aggressive lending up to March this year. They had started off from around October last. "Maybe they had a target in mind. In any case, after April 2002, I am not able to locate them in the marketplace anymore. It's possible they would suddenly find that there is a target to meet and come back again''.

Asked if the SBI has not been the first to come out with rate cuts, Mr Sowmyan said the cuts are announced just for the sake of visibility.

Another worrisome feature about banks is that many of them do not bother about creating fresh business. What they have been doing is to undercut the HFCs merely to take away the latter's loan accounts for creating a sound portfolio. By doing this, they are not creating any new national wealth. Is it the way a bank or an FI should conduct its business? It should be able to create new assets.

"I don't grudge the bank because not only have I been able to stand on my own feet but am able to shine by contrast, too. What I have done is to match banks point-by-point lowering the rates, on the one hand, and upscaling service delivery on the other. This has brought us business like never before, and GICHF alone has registered a 100 per cent jump in business over the last year''.

If the competition is between players within one industry, it is fair and square. But playing one industry against the other is an unhealthy practice. If housing is to be developed as an industry, it would need infrastructural finance of a particular nature and scale. There is a need for specialised player in the field. Core competency is all what it counts. That is why all big corporates, having diversified into unrelated areas in the medium term, are returning to their core competencies. Efficiency in core competency is what counts, Mr Sowmyan said.

Two categories of NPAs

ASKED about NPAs in the sector, Mr Sowmyan, Chief Executive, GICHF, said housing loans made for two categories of NPAs - individual loans accounts and construction finance accounts.

Individual loans are what GICHF deals in at present. It is no more in the construction finance sector.

"This way, we have got a figure of 8.5 per cent for NPAs in construction finance and 1.7 for individual loans. The industrial average for the latter is 2.7 per cent as per National Housing Bank statistics. But we are confident within a two-year period, we will come back to normalcy by absorbing all these NPAs. And, should some, if not all, all these NPAs turn into PAs, I stand to gain because they would already have been provided for in my previous balance sheet'', says Mr Sowmyan.

"My bankers are so happy lending to me. Because, firstly, we have the backing and the moral support of our parent, GIC. Secondly, we have never been on their NPA list at any point of time, whatever the size of NPAs that we may have had on our own balance sheet.

"Our fund management is very well organised that way. I have got Rs 180-crore worth sanctions as on date which we have not lifted yet. During the initial years, I had to go and beg banks for a loan of Rs 3-Rs 4 crore. Today, I don't accept anything below Rs 50 crore from banks. They are only too willing to oblige'', says Mr Sowmyan.

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