Growth in Housing Finance Market,
Quality of Assets and Customer Related Issues
Anil Sachidanand, CEO
Dewan Housing Finance Corporation Limited
April 20, 2012
Evolution of Housing Finance Market in India
Pre NHB
Centralized
direct credit
Pre
1970
Post NHB
National Housing Bank:
Regulatory
and
supervisory
body
/
refinancing agency
1st private sector retail
housing
finance
institution established
1971
HUDCO established: Public
Sector, wholesale lending
1977
1984
DHFL
commences
operations
Source: Indian Housing Finance Market Outlook to 2015, Mindpower Solutions
1988
Late 80’s and
Early 90’s
Commercial banks get
active in direct lending
for housing finance
Late 90’s
Public sector banks /
insurance companies
promote HFCs
Microfinance institutions and
foreign banks get active in the
housing finance market.
54 HFCs active in the market
2008
Sub Prime crisis.
Indian Mortgage Market shows
resilience
2009-11
Housing Finance Market Classification
H
O
U
S
I
N
G
F
I
N
A
N
C
E
M
A
R
K
E
T
Banks
Public Sector Banks
Private Sector Banks
Foreign Banks
Housing Finance
Companies
SBI, Bank of Baroda, Canara Bank, PNB, Dena
Bank, Bank of India etc.
HDFC Bank, ICICI Bank, Axis Bank, ING
Vysya Bank etc.
Standard Chartered, Citibank, HSBC etc.
DHFL, HDFC, GRUH, Indiabulls Housing Finance, Reliance Housing Finance, Sundaram
BNP Paribas, Religare Housing Development Corp etc.
LIC Housing Finance, GIC Housing Finance etc.
Insurance Companies
Key Players providing Home Insurance: New India Assurance, National Insurance, ICICI
Lombard, Bajaj Allianz, IFFCO-TOKIO, Tata AIG etc.
Micro Finance Institutions
Development Financial
Institutions, Co-op
Housing Societies
Micro Housing Finance Corporation, MAS rural housing and mortgage finance etc.
HUDCO, NABARD, SIDBI, Apex Co-operative Housing Federations, State Co-operative
Agriculture and Rural Development Banks etc.
HFCs Continue to Register Strong Growth
Credit
Growth
Market
Share



32%
25%
22%
14%
21%
50%
23%
13%
8%
13%
26%
27%
74%
31%
73%
69%
33%
67%
36%
64%
Currently there are around 54 HFCs registered with NHB (19 HFCs are allowed to accept public deposits)
Share of HFCs in the mortgage market is expected to grow from 26% in 2005 to 36% in 2015.
The increase is attributed to the strength of their focused approach, targeting of special customer segments, relatively superior customer
service, and significant growth plans.
Source: ICRA, Emkay Research
Are WE as HFCs Happy with the Growth ?...NO…Why?
• Housing Finance Companies, though have a separate classification, industry status given to them is
Industry
Status
still missing.
• Trade associations like FICCI, CII, ASSOCHAM etc. do not have a separate housing wing for
housing finance companies.
Lack of
Presence of
Business
Families
• Key Indian entrepreneurial families are not inclined to make housing finance as one of their main
business units.
• Eg: Mr. Kumar Mangalam Birla, Mr. Mukesh Ambani, Mr. Adi Godrej, Mr. Anand Mahindra.
• DHFL & HDFC have shown the way to be reckoned as premier housing finance institutions tapping
Limited Capital
Market Listing
New HFCs still
need to grow
the capital markets. However, there is a dearth of HFCs getting listed on the stock exchanges.
• No major Housing finance company listed in recent years.
• New HFCs remain on the fringes and are best described as marginal players. They are not able to
make significant impact in the growth of the industry
Recommendations for Inclusive & Sustainable Growth
Inclusion in
Trade
Associations
Support the
• Facilitation by NHB towards building a trade association of HFCs.
• Inclusion of HFCs in major trade associations like FICCI, CII, ASSOCHAM etc.
• Support from NHB to new HFCs in the market by bringing out action oriented plans to ensure the
Growth of
scalability of these companies. This would help them to enjoy strong and sustainable growth in
New HFCs
future.
Entry
Facilitation
• Entry facilitation to the new players in the market.
and Enhanced
• Overleveraging of CAR and enhanced borrowing powers to support the scalability of existing as
Borrowing
Powers
well as new HFCs.
Quality of Assets in the Indian Mortgage Market


In India, we do not have Prime vs. Sub Prime !!!

There is NO need to follow practices of other countries that have different socio-Economic Culture.

Being risk averse by nature, an average Indian borrower is less likely to default on loan repayments.

Comfortable loan-to-value and instalment/ income ratio with quality credit appraisal has ensured growth with stable asset quality.
Best managed companies on a larger balance sheet having efficient collection & recovery mechanism operate at less than 0.50% of NPA
levels @ 90 days past dues.

Worst players have inefficiency in their collection & recovery efforts. Hence the quality of assets take a beating. These companies
operate at NPA levels in the range of 1.85-2.25%.

Major challenges in maintaining the quality of assets are:

Book keeping of loan customer accounts and Document safeguard / retrieval through in-house/outsource model.

Quality of auditors with domain expertise stands missing.

Understanding that SARFAESI is not a threat but a facilitating mechanism.

Given housing finance a state subject, the quality remains subjective. Further , objectivzing end-to-end operations of housing
finance remains a big challenge.
Asset Quality of HFCs Remain Upbeat

As discussed, the mortgage market has remained upbeat given the nature of borrower (being end-user) and their risk-averse behaviour.

The mortgage demand is primarily dominated by first time home buyers and is not much speculative in nature.

This is evident from the fact that even during the crisis period of 2008-09, GNPA for HFCs remained well within their comfort zone.

Over the years, asset quality has shown material improvement driven by adequate appraisal systems and effective recovery mechanism.
Also, through stringent provisioning norms, NHB has ensured adequate cover.
Source: Emkay Research
Customer Service - A Serious Challenge
• Indian mortgage market is majorly characterized by first time loan borrowers with a conservative mindset.
• Technical jargons and use of heavy language is not well understood by most of the customers.
• Educating the customers about the home loan products in simple and easy to understand language remains the key.
• Biggest challenge for HFCs is to provide quality service to all the customer classes as per their needs.
Customer Diversity Across Income Levels
Property
Purchasing
Decision
Financing
Options
Judging
Creditworthiness
Sensitivity to
Interest Rate
Emphasis on
Quality of
Service
Investment /
End Use Driven
Many
Easy
Highly
Sensitive
Highest
End Use Driven
Comparatively
Less
Relatively Easy
Relatively
Less Sensitive
Relatively
High
End Use Driven
Very Few
Difficult
Not Sensitive
Relatively
Less
Globals
(Income: >Rs.10 Lacs p.a.)
Strivers
(Income: Rs.5-10 Lacs p.a.)
Seekers
(Income: Rs.2-5 Lacs p.a.)
Aspirers
(Income: Rs.1-2 Lacs p.a.)
Deprived
(Income: < Rs.1 Lac p.a.)
•
Customers behave differently across income levels on various business parameters
•
It is important not to lose sight of customer’s needs and wants. Organization psychology needs to be aligned with the same.
Recommendations to Enhance the Quality of Customer Engagement

Is there a need felt to have only approved mortgage brokers / originators towing to regulatory guidelines?

Need for an escalation mechanism similar to IRDA for wrong selling / commitment of home loan products?

Guidelines for superior customer service in order to enhance customer engagement

Penalty for non service / wrong service


Should it hit the rating of Housing Finance Companies?

Should it affect the refinancing option available?
Should customer service be made an important and uncompromising business parameter for all HFCs?
Responsible lending along with superior customer service would ensure
satisfaction of all the stakeholders in the mortgage market and contribute towards sustainable growth
As the first milestone, mortgage as a % of GDP should be increased to 20% by 2020
Can we all together do it with NHB & RBI as the guardian of the industry?
THANK YOU