Dewan Housing Finance Ltd, which has 450 distribution points across the country, is growing at 15 per cent a year by lending primarily to low- and middle-income (LMI) households.

In an interaction with Business Line, Rakesh Makkar, President and Chief Distribution Officer, talked about how lending to an auto-rickshaw driver or to a gym instructor has helped the company keep loan defaults below one per cent. Makkar believes the LMI segment will continue to grow and prices of houses in this segment might, at the most, see a 5-10 per cent correction.

Excerpts from the interview:

Amid the slowdown, how are you going about your lending operations?

Our target group is low- and middle-income customers, and we are growing at almost 15 per cent. We are not seeing a major slowdown in the LMI segment. The slowdown is in the high-end segment, which is not our target market. Maximum correction (in property prices) in the LMI segment may be 5-10 per cent. The tax benefits make the effective borrowing cost at around 6.5 per cent. Also, with retail inflation at 10 per cent today, we do not expect property prices to come down. Things are only going to get more expensive.

Our average ticket size is Rs 10-11 lakh and most of our customers buy houses in the Rs 25-30 lakh category. And with the economy growing at 5 per cent, which is not bad compared to the advanced economies, we think the LMI segment will continue to grow.

Are enough houses getting built in the LMI category?

I agree there is still not enough construction happening in this segment. The LMI segment continues to buy even though there is not enough supply. The moment you get into the Rs 1 crore-plus segment, there is excess supply. Slowly, even the big guys are getting into building projects for the LMI segment because not many people are buying houses in the premium segment.

In some cases, builders are now forced to give as much as 20 per cent discount on houses that are more than Rs 5 crore.

You have managed to keep the bad loans under control. Don’t you find delinquencies in the LMI segment?

You will be surprised that this segment performs extremely well. They are very prompt with their payments. Our gross NPAs (non-performing assets) are about 0.7 per cent and our net NPAs are negligible. This category of customers puts all their life’s savings as upfront money to buya house. They cannot afford to let the investment fail. They have no other place to go. Also, property prices do not correct in this segment. That is why we are absolutely focussed on serving this segment. We have even hired people from local areas who can connect with this segment.

In the high-income segment, people buy houses in the Rs 5-crore category, mainly for investment purpose. So, if there is a 10 per cent correction in prices, the investment value goes down by Rs 50 lakh. So, they prefer to walk out of that investment rather than continue to service the loan.

The cost of funds has been very volatile and may continue to be so for another six months. What is your strategy to overcome this?

One, we are trying to get some money through the external commercial borrowing route. And, two,, our pricing to customers is variable. So, whenever the price changes, we pass it on to the customers. It is unfortunate, but we have no choice. We really never run a risk on our portfolio. So, if a customer has taken a loan at 9.5 per cent, he has to pay 11 per cent now due to change in market conditions.

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