The Hindu Business Line : `Market can absorb home loan rate hikes' — More disbursals by lenders; more younger borrowers

LIC Housing Finance's decision to step up interest rates will enable it to stay in tune with the rest of the market, according to Mr S.K. Mitter, CEO. In an interview to Business Line, he also spoke on various other trends such as the use of securities like bank deposits for loans, the company's proposed participation in real estate funds, and its plans to expand internationally. Excerpts:

How is the housing loan market growing?

Let me talk about just two indicators. One, the loan books of housing finance providers are getting bigger, and two, the average age for new homeowners is on the decline. Both factors underline the growth that the home loan market is currently witnessing.

At another level, the tendency to seek loans against fixed-income assets, especially fixed deposits with banks and NSCs, is also on the rise. Also, the market is expanding because of real estate developers, who are themselves enlarging their operations. Today you have quite a few national-level developers, some of whom were regional players till recently.

Are builder ratings making any difference at all?

Efforts by rating agencies such as Crisil to bring in specialised products for the construction sector have made a mark. For a financial institution, it is important to have third-party views. The idea is to bridge information gaps and set improved quality standards.

Is the international market becoming any bigger?

Yes. That is because more NRIs, having created wealth elsewhere, are seeking to invest in property in India. At LIC HF, for instance, we have seen how the share of West Asia has grown in this respect. That region accounted for approximately Rs 40 crore last year; we intend to increase it further in 2006.

At LIC HF, is there scope for more equity infusion?

Not at the moment. Although our topline is growing, we do not see the need for expanding our equity base right now. LIC, the promoter organisation, currently has a critical stake - about 39 per cent. The company is a listed entity. We did a GDR issue in 2004.

You planned to participate in Kotak Mahindra's realty fund...

We have committed Rs 50 crore on this front. This is likely to be released as and when required. This will be a first for the company. Real estate funds have succeeded globally and have given satisfactory returns to investors. This may well be replicated in India.

Lastly, how does the rate hike fit into your scheme of things?

We decided to increase the minimum lending rate in line with the prevailing trend marked by advancing interest rates. The market, it is felt, will be able to absorb this with little effort.

The company is looking forward to higher volumes in the coming fiscal in line with the numbers recorded in the last few years. We have seen about 30 per cent year-on-year growth in business, a situation matched by rising profitability.

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`Market can absorb home loan rate hikes' — More disbursals by lenders; more younger borrowers