LIC Housing Finance (LICHFL) is scaling down share of high-margin developer loans to 4-6 per cent of its loan book from an initial target of 8 per cent this fiscal, owing to poor support from banks to commercial realty segment as well as its decision to stop-term loans to the industry.

Accordingly, the mortgage arm of the life insurance firm LIC is exploring other options like reducing the composition of bank borrowings and increasing borrowing through debentures to meet its margin guidance of 2.5—2.7 per cent, a top company official has said.

“At this stage, the market is very disturbed. The primary reason is not that demand is not there, but bank approvals are not coming in, funding is not happening. My funding will not help them alone,” LICHFL Director and Chief Executive V K Sharma told PTI, explaining what is keeping developers off.

Following adoption of standard operating procedures in the wake of its previous chief executive getting caught in the cash-for-loans scam, the company has also stayed away from giving term loans to developers and is offering construction finance which is linked to the progress of the projects, Sharma said.

Additionally, the lower lending, which the company started giving in the wake of the scam, has also been promptly repaid by borrowers, reducing the outstanding portfolio, he said.

The developer segment constitutes about 3 per cent of the total assets of over Rs 69,000 crore for the mortgage player.

Saddled with low margins of under 2.20 per cent, the company has been saying that it will gradually increase the share of developer loans to 8-10 per cent and had earlier said it will meet the target by the end of this fiscal.

When asked when will the company be able to reach its ideal target of 8-10 per cent, Sharma said, “It will take a year or two because now our individual loan portfolio has grown very big“.

To meet its net interest margin target, the city—based company is targeting to reduce the share of borrowings from banks to 25 per cent from the earlier 30 per cent by end of the fiscal, he said, adding that it will be just over 1 per cent of the interest costs by opting for the non-convertible debentures.

For FY’13, the company has a borrowing target of Rs 62,000 crore. Its net interest margin, which slipped to 2.10 per cent in the quarter to September, will also be helped greatly by the migration of up to Rs 12,500—crore portfolio from dual rates being serviced at a fixed rate, to floating rates, he said.

Through all these measures, the company hopes to take the NIM number to above 2.5 per cent by end of the current fiscal, he added.

(This article was published on November 4, 2012)
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