Share
By Jeevan Das Narayan
India is one of the world’s fastest growing economies, with the sixth largest GDP. Occupying a pride of place in the financial eco systems are the NBFCs and HFCs.
Perhaps no sector has come under as much media attention and public glare in recent times as the housing finance sector. A close second would be the NBFC sector in general. It is a well-known fact that the sector started facing difficulties close on the heels of the IL & FS debacle and the ALM issues faced by a large HFC, triggering a liquidity tightening for the entire sector.
Over the years, NBFC Sector has played a stellar role in driving credit disbursals in areas and segments of customers where banks were traditionally hesitant to venture into. It is reported that over the last 5 years or so, the NBFC lending book has grown by nearly 18%, mainly driven by a deep understanding of specific customer segments, lean cost structures and technology. Developments in technology and the advent of Fintech companies have also played a key role in fuelling the NBFC growth story in our country.
Housing Finance Companies have always been an integral part of the NBFC eco system. But their importance started increasing in our economy in the last couple of years. Their advent was fuelled by the vision of “Housing for all by 2022” announced by the Government. Increasing incomes in the hands of the middle class, infrastructure development, opening up tier III & IV centres, larger and organized players moving into the affordable
segment, are the various factors which have contributed in no small measure to the growth of the market for affordable housing in our country. This, in turn has led to a number of smaller players and established business houses venturing into the segment with their housing finance subsidiaries. Implementation of RERA and concessions in GST for smaller dwelling units have further added to the charm of the sector.
Several Housing Finance Companies have been waiting in the queue for license from NHB and this trend is expected to continue. New entrants are likely to face tough competition from the existing players. This combined with the liquidity tightening and the current slightly negative market perception on the sector, would make it extremely challenging for newer and smaller players in the near term.
We, however, believe that this is just a passing phase like various business cycles witnessed from time to time. Players with deep understanding of the sector and customer segments, with robust risk mitigation measures in place will outlast others. As housing is the most fundamental of all human needs, the market for affordable housing will further expand beyond, even tier IV cities in the times to come. As banks have traditionally been funding only the salaried and the documented income segments, there is huge scope for HFCs to fund the unfunded and undocumented income segments of customers. On the supply side, several established players expected to enter the segment especially in tier III & IV cities is likely to increase the supply in such cities, adding to the supply from self-construction.
We, at Manappuram Home Finance have been able to grow at a steady phase over the last couple of years since inception, as compared to many of our competitors under the able guidance and support of our parent company, Manappuram Finance Limited.
Our strategy is to grow at a faster pace in the affordable housing segment keeping a firm eye on quality of the portfolio and adopting a low OPEX model.
Technology will play a key part in our journey ahead. A comprehensive digitisation of the processes is what we are aiming at. The complexities involved in underwriting mortgage loans at various locations and states, under varying property dynamics and valuation matrix renders the task challenging but not insurmountable.
A deep understanding of the Micro markets, various customer segments and adopting technology intensive processes with score card-based credit engine will help us in scaling up quality business. A strong risk & collection culture with an employee friendly work culture would be the right ingredients for our sustainable growth.
To conclude, Governmental push in affordable housing sector combined with the regulatory tightening of the sector with higher capital requirements and lower leverage will definitely boost the prospects of the sector, attracting newer players and eliminating the marginal entities. With the expected improvement in the real estate sales velocity and liquidity in the market, the sector prospects are expected to significantly improve for serious players who take medium term view. We at ‘MAHOFIN’ are poised to grow our company on the desired lines adding value to all Stakeholders.
(The writer is MD - Manappuram Home Finance Limited)