Shriram Housing Finance, which operates in the affordable home loan segment, has set a growth target of over 50% in FY 20122, says MD and CEO Ravi Subramanian. Edited excerpts:
How will the housing finance sector benefit from the provisions of the Union Budget?
The government focuses on its agenda of ‘Housing for All’. In this budget, it was announced to increase the benefit of PMAY (Pradhan Mantri Awas Yojana). The emphasis on this section is evident with affordable housing rental programs. It is good to see that there is a clear plan to ensure benefits to the end consumer.
There are also some changes at the sector level that are worth noting. A good change is that AIF is now allowed to purchase NPAs. It was previously limited to ARC only. With the AIF entering this space, it brings some competition. This is likely to expand the market.
From the point of view of pure housing market, a lot of things have changed in the last 3-5 months and the demand for small and medium ticket houses is coming back. In addition, working from home has increased demand in mini-metros, even in metros people are upgrading their homes. We expect this demand to continue in the new year as well.
What is the development you are expecting?
If you look at our home loan book, we are seeing a growth of around 50-60% next year. This year our numbers will be around 60% higher than the previous year despite three months of COVID. Effectively, we will double our volumes in 2012 as compared to FY 2012. We are in a strong growth trajectory, and we have made adequate arrangements, both financially and operationally, to manage this growth efficiently.
Where do you stand far from your great companions?
We work in the affordable housing finance segment. Our AUM is ₹ 3,500 crores and we have grown at almost 50% CAGR in the last two years. We have identified 6 states as our main markets, where we will build a fairly deep-rooted distribution network.
In addition, we will continue operations in major cities of another 3-4 states. Our focus is on a well-trodden network in the south and west.
In the southern states of Tamil Nadu, Andhra Pradesh, Telangana and Karnataka, we focus on affordable housing. Shriram Group has a large customer base in various loan products. Shriram is a very strong brand in these states and we co-exist with other businesses of the group.
An important part of our customer base is existing relationships within the group, and to that extent credit testing has been done within our network.
In the western region which are mainly Maharashtra, Gujarat and Rajasthan, we focus on the middle income group. From here our focus is on the creation and development of Shriram brand.
Our core segment remains self-employed customers where we use internal credit tools to evaluate the customer and expand credit accordingly.
Overall, we operate in a diverse terrain for sourcing loans. And since we are working in sectors spanning from affordable to middle income groups, we are able to maintain an average ticket size of 1.5 million.
What has been the effect of COVID-19 on your company? Is there any possibility of the creation of an NPA?
In the quarter ended December 2020, despite COVID, our Phase III assets increased by only 10 basis points. Our portfolio has performed very well. Provisioning has grown modestly in line with our Phase III assets and has focused on efficient collections. Our engagement and customer awareness programs have helped our collection activities during the lockdown phase.
In January 2019, we came up with a new way of doing business which included new credit evaluation procedures. This has happened since January 2019 due to our NPA being in a business of over ₹ 2,000-crore.
In 2019, you set new parameters and standards. How to help?
We were previously operating through our 88 branches across the country, which we had reduced to 55 with a more manageable and smaller, focused geography as we were keen to bring efficiency of scale to these markets. This slight restraint helped us to increase our dominance in the target markets.
Secondly, we brought in a management team, which would actually do a business of ₹ 10,000-15,000 crore from here. Our new team is able to scale our current business to 5X or 6X.
In addition, we have moved a lot of our customer service to the digital model. We have launched an app that provides assistance to the customer with any information he needs to download the required documents or make EMI payments.
Therefore, our effort is to take our services to digital platforms and educate the customer on this. Our digital and technically competent customer acquisition and underwriting has helped us tremendously.
What is your overall development plan?
Shriram Housing is a focused area for the finance group. We will end up at ₹ 3,700 crore this year, which is almost 60% higher than last year’s AUM. Our development plan on the AUM side is to achieve next Rs 6,000 crore next year and 10,000 crore A in the year thereafter.
We intend to grow from more than 70 branches to 175 branches by March 2022. We will continue to grow our distribution in our focus markets.
We will go deeper into the states and dominate the southern states – Karnataka, Andhra Pradesh, Telangana and Tamil Nadu, and the states of Maharashtra, Rajasthan and Gujarat.
In the coming quarters, we may see infusion of development capital in the range of 400 300-400 crores in SHFL. Our current net worth is about 600 million, and we will reach an optimal leverage level in one and two quarters.
Therefore, we are raising capital in the near future and it is likely to be from parents.
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