We will end FY 22 with a loan book of Rs 6,000 crore, says Ravi Subramanian, Managing Director and CEO of Shriram Housing Finance

So, yes, this is a trend that I see continuing, especially for small and medium mortgage loans.

The growth in the home loan market is being driven by the post-Covid awareness of the need to own homes and it will continue, Ravi Subramanian, Managing Director and CEO of Shriram Housing Finance, told Shritama Bose. The company’s portfolio in the 30-90 day past due (dpd) segment fell to 4.9% from 8% two years ago, he adds. Excerpts:

Do you see the recovery of the mortgage market in the second half of 2020 continuing?

If you look at the kind of transactions that have taken place not only in Mumbai and Delhi, but across the country, it bodes well for the industry. Whether it’s pent-up demand that is being met now, or people are genuinely looking to buy homes and secure their futures, time will tell. Based on the type of transactions we fund – the first purchases of a home rather than the second or third by speculators – we see a distinct change in the approach to a home. Today, a house has become a combination of a house and an office. So the trend that we’ve seen in this market is that people are building an extra room, so our self-build loans are increasing. People are trying to go from a 1BHK to a 2BHK and from a 2BHK to a 3BHK. Transactions are therefore increasing. Our assessment is that due to Covid and the inherent issues that Covid raised, people started to see the need for a home. So, yes, this is a trend that I see continuing, especially for small and medium mortgage loans.

Today we are in a hypercompetitive environment where banks are lowering mortgage rates. Your rates start at 8.9%. How do you ensure the quality of the portfolio in such a scenario?

The market itself is large enough that several players survive at the same time. But, more important than that is the fact that there are multiple segments, including those that are not of interest to the big banks or some public sector banks. For them, applying their underwriting practices and policies to the self-employed segment in the Rs 10-15-lakh ticket size range is very difficult and costly. They will never be able to operate in this space. The self-employed, in particular the small and medium-sized self-employed, are never touched by the banks. That said, this is the reason why banks’ mortgage business is operating at 0.5-0.6% RoE (return on equity), while mine is operating at 2.5% RoE. The other point is that I work with a lot of new credit clients, whereas the banks don’t reach people who don’t have a credit history.

What is the size of your loan portfolio now and by how much would you like to increase it in FY22?

I finished December 2020 at around Rs 3,000 crore. We will end March at around Rs 3,600 crore and FY22 will end closer to Rs 6,000 crore. We hope to leverage our Shriram group network for this. My distribution points will go from 75 to 175 now. It’s scheduled for the first six months of next year. Second, we have invested heavily in human resources and distribution over the past six to seven months. These will all bear fruit in the coming year. We focus on specific geographic areas. We are clear that there are six states we want to dominate – AP (Andhra Pradesh) -Telangana, Tamil Nadu, Karnataka, Rajasthan, Madhya Pradesh and Chhattisgarh in the affordable housing space. In the NCR (National Capital Region), Mumbai, Maharashtra and Gujarat, we will dominate in the middle segment.

To what extent has the Covid impacted the repayment capacity of your borrowers?

My collection efficiencies returned to pre-February 2020 levels in December. My 90 dpd (days late) increased by 18 basis points (bps) from pre-Covid levels. The whole Covid supply covers more than that. I will end up reversing a part in March. Bounce rates are lower today than in February 2020. We changed all of our operating procedures, credit processes, valuation techniques, product policies and diversification strategy in January 2019. We started to track this portfolio separately from the rest of the book and it is now 65-70% of the total book. Out of this Rs 2,300 crore wallet, I only had two 90 dpj accounts, which is a total of Rs 10 lakh.

What do the numbers 30-90-dpd look like?

Our 30-90-dpd retail pound is 4.9% and 1-30-dpd is 3%, as of December 2020. Compared to that, two years ago, 30-90-dpd was d ‘about 8%. So it has dropped dramatically.

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