Growth in Housing Finance Market,
Quality of Assets and Customer Related Issues
April 20, 2012
Anil Sachidanand, CEO
Dewan Housing Finance Corporation
Limited
Evolution of Housing Finance Market in India
1971
Centralized direct credit
HUDCO established: Public Sector, wholesale lending
Pre 1970
Sub Prime crisis.Indian Mortgage Market shows resilience
National Housing Bank: Regulatory and supervisory body / refinancing agency
National Housing Bank: Regulatory and supervisory body / refinancing agency
1977
1st private sector retail housing finance institution established
1984
DHFL commences operations
1988 Late 80’s and Early 90’s
Public sector banks / insurance companies promote HFCs
Late 90’s
Commercial banks get active in direct lending for housing finance
2008
Source: Indian Housing Finance Market Outlook to 2015, Mindpower Solutions
2009-11
Microfinance institutions and foreign banks get active in the housing finance market.54 HFCs active in the market
Pre NHB Post NHB
Housing Finance Market Classification
HOUSING
FINANCE
MARKET
Banks Public Sector Banks
Private Sector Banks
Foreign Banks
Housing Finance
Companies
Development
Financial
Institutions, Co-op
Housing Societies
Micro Finance
Institutions
Insurance
Companies
LIC Housing Finance, GIC Housing Finance etc.
Key Players providing Home Insurance: New India Assurance,
National Insurance, ICICI Lombard, Bajaj Allianz, IFFCO-TOKIO, Tata
AIG etc.
DHFL, HDFC, GRUH, Indiabulls Housing Finance, Reliance Housing
Finance, Sundaram BNP Paribas, Religare Housing Development Corp
etc.
HUDCO, NABARD, SIDBI, Apex Co-operative Housing Federations,
State Co-operative Agriculture and Rural Development Banks etc.
Micro Housing Finance Corporation, MAS rural housing and mortgage
finance etc.
SBI, Bank of Baroda, Canara Bank,
PNB, Dena Bank, Bank of India etc.
Standard Chartered, Citibank, HSBC
etc.
HDFC Bank, ICICI Bank, Axis Bank,
ING Vysya Bank etc.
HFCs Continue to Register Strong Growth
Credit Growt
h
32%
50%
25%
23%
22%
13%
14%
8%
21%
13%
Market Share
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?
Industry
Status
•Housing Finance Companies, though have a separate classification, industry
status given to them is 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.
Limited
Capital
Market
Listing
•DHFL & HDFC have shown the way to be reckoned as premier housing
finance institutions tapping 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
still need to
grow
•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
Associatio
ns
• Facilitation by NHB towards building a trade association of HFCs.
• Inclusion of HFCs in major trade associations like FICCI, CII, ASSOCHAM
etc.
Support
the Growth
of New
HFCs
•Support from NHB to new HFCs in the market by bringing out action
oriented plans to ensure the scalability of these companies. This would help
them to enjoy strong and sustainable growth in future.
Entry
Facilitatio
n and
Enhanced
Borrowing
Powers
•Entry facilitation to the new players in the market.
•Overleveraging of CAR and enhanced borrowing powers to support the
scalability of existing as 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.
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.
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%.
Asset Quality of HFCs Remain Upbeat
Source: Emkay Research
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.
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
• 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.
Property Purchasing
Decision
Sensitivity to
Interest Rate
Emphasis on
Quality of Service
Judging Creditworthin
ess
Financing Options
Investment / End Use Driven
Highly Sensitive
HighestEasyMany
Comparatively Less
Very Few
Relatively Easy
Difficult
Relatively Less
Sensitive
Not Sensitive
Relatively High
Relatively Less
End Use Driven
End Use Driven
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
THANK YOU
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?