With the Narendra Modi-led Government promising 100 new smart cities, housing finance players are pretty excited. They have started to sense a business opportunity which will fuel the next phase of growth. Even companies that lend to the lower-income segment are setting store by the promise. Dewan Housing Finance’s subsidiary Aadhar Housing Finance is one such company. In an interview with BusinessLine , Harshil Mehta, Managing Director and CEO, outlines the opportunities and challenges in lending to this segment. Excerpts from the interview:
You entered the affordable home loans space in 2011. Take us through your journey so far and tell us about your plans for the future
We are present in eight States and through our 42 branches we service 140 locations using the hub and spoke model. Our 200 on-roll employees source more than 1,700 applications every month. Our average ticket size continues to be ₹6.20 lakh. About 80 per cent of our customers earn less than ₹30,000 a month.
Our experience in serving the economically weaker sections (EWS) and the lower income group (LIG) has been good. We have more than 10,000 customers on board. Our portfolio size is ₹525 crore.
And where do you intend to go from here?
We believe we will grow at 25-35 per cent year-on-year. We plan to expand our services to 12 States by December 2015. We are clear that we want to remain focussed on this segment on a pan-India basis. With the Government talking about 100 new cities, it only excites us more. Suddenly we feel that we are in the right place at the right time.
At our level (average ticket size of ₹6.2 lakh), in all the hundred cities there will be a need for houses for the economically weaker sections and lower income groups. We are very optimistic.
Are developers coming up with houses for the low-income segment?
You do not have a lot of developer activity in low-income States, such as Jharkhand, UP, Chattisgarh and Bihar. You do not see organised supply in these States.
Plotting is very common in those places. In these areas, we give plot plus construction loans.
In States such as Gujarat there are developers who build houses for as low as ₹4 lakh. Supply is very good.
What are the challenges in lending to the EWS and LIG segments?
Challenges are with respect to know-your-customer (KYC) requirements. In case of joint applicants, we have seen that the woman partner does not have the required KYC.
Next comes banking awareness. Even salaried employees do not use cheques to transact, though the money gets credited to their accounts directly. So, getting them into the mode of instalments is a challenge.
Also, land titles are generally held ancestrally and most people are not aware of the benefits of having it transferred to their name.
But does proper documentation and adequate KYC indicate better creditworthiness?
Good KYC is not really a key to creditworthiness. We have been raising this issue in various forums and with the regulators. We are lenders and we do a lot more due diligence than just the required paperwork. We are here to earn, and not for charity.
We have the customer’s title, so the customer will not leave us even if we leave him. We are burdening him further by increasing the KYC documentation.
What can the regulator do to give a thrust to housing in this segment?
We are dealing with an extremely different breed of customers. We believe it is about time the regulator had a separate set of guidelines in terms of, say, more diluted KYC requirement and some leeway in meeting technical guidelines like mandatory earthquake-resistant houses.
It doesn’t make sense to push this criterion (earthquake-resistant construction) on a customer who is building a single storey 500 sq ft house in a small town on a thin budget of ₹400 per sq ft. It may make sense for high rises in cities like Mumbai.
On the capital adequacy front, we will like to get some relaxations, so that we get more money for lending.