Higher tax benefits on home loans to help boost demand: Ravi Subramanian, MD and CEO, Sriram Housing Finance

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interview, Subramanian Jambunathan, Shriram Housing Finance, tax benefits, IL&FS default


Subramanian Jambunathan, MD & CEO, Shriram Housing Finance.
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By Mitali Salian

After taking measures to restructure operations towards the end of last year, Shriram Housing Finance’s focus is now on the growth trajectory. For FY20, the company expects to be back to a pre-tax ROA of 2.5%, 35-40% growth in disbursals and 30% growth in AUM, managing director and CEO Ravi Subramanian tells Mitali Salian. Edited excerpts:

What is your current AUM and target for FY20? Several HFCs have seen their AUMs affected post the liquidity crises following IL&FS default.

Shriram Housing Finance has an AUM of around Rs 2,000 crore. Our AUM has been steady and has not dipped post the IL&FS default. Yes, the liquidity position has tightened up, hence, we are cautious about the loans we give out. When money is scarce, one starts focusing on higher yielding loans. Given that we are largely a retail organisation, this has not been an issue at all for us.

In view of the trouble within the sector, what growth are you expecting for FY20 (industry and Shriram HF)?

The industry’s pace of growth will of course be lower than what it has been in the past. The fact that the demand for home loans is a derived demand and the real estate industry is going through tough times, this degrowth is not entirely unexpected. At Shriram Housing Finance, however, we expect to register a 35-40% growth in disbursals and a 30% growth in AUM this year.

How much does ‘affordable housing’ finance contribute to overall growth of the company? Could you talk about your future scale up plans with respect to ‘housing for all’?

Affordable housing is a significant part of our growth plan. However, it is not a business which you can grow simultaneously across the country. We have decided that we will grow the affordable housing finance in states where Shriram Group dominates. As a group we have over 3,000 branches from which we cater to the under served, which we intend to leverage for growing the book. Over next few years, affordable housing will be 60% of our housing business.

Given the current environment, is Shriram HF adopting any focused strategy with respect to asset liability maturity management and liquidity conservation, apart from holding back on dividends?

Our Company continues to monitor the external environment on fund raising. Even before the crisis hitting the markets, we had a focused asset liability management process which ensured enough liquidity is available across time buckets to meet our growth aspirations and repayments, which was carried out through measures such as low dependence on short term funds, raising longer tenor liabilities, ensuring a certain portion of liquidity is available at all times. We remain sharp on our ALM and cash management practices.

How does the company currently stand in terms of capital requirements? What are the company’s fund raising plans for FY20, if any, and through what means?

Presently, our capital structure is quite comfortable with a relatively low gearing of around 3.5 times and a CRAR of around 30%, which is more than double of what the regulator prescribes. We continue to focus on raising long-term liabilities from debt capital markets, banks and also have started to look at other avenues of raising liabilities such as external commercial borrowings and market linked debentures. We expect a further infusion of equity capital from our Group as we look to ramp up our housing finance business.

Are there any potential plans to list the company in the future, perhaps within the next five years or so?

We are aware that there is a fair bit of interest in the company on account of its construct and its parentage and we will take a call on listing the company at an appropriate time.

Could you talk about the company’s asset quality?

Our GNPAs in March were at 2.47% and our net NPAs were sub 2%. By industry standards these are very good numbers, given the over 15% yield that we make on the book. The GNPAs were high a year back, but through focused collection and legal remedies, we have brought them down. The asset quality both in terms of NPAs and early mortality indicators are quite positive. In the last nine months, we don’t even have a single account overdue by even a single day. We have also stayed away from developer loans, which now constitute less than 10% of our book. And most of these loans are in the Rs 5-10 crore range (as retail as developer loans can be). We do not have any portfolio quality issue arising out of these loans.

The company’s profitability has taken a hit in FY19. Could you talk about it in detail and your plan for FY20 in view of the current environment?

Towards the end of last year, we took a few stringent measures to restructure the operations of the company — letting go of unproductive resources, building a talent pool / leadership, re-looking at the distribution and business strategy, changing our operating model etc. We also sold a pool of NPAs to ARCIL to clear up the runway for growth. All this came at a cost. Now we are fully capitalised and have a clear vision of what we want to achieve. As for profitability, we are at an inflection point. Right now, our focus is on getting the business model right and making sure that we are on the growth trajectory. Profits are a by-product. For the year 2019-20 we will be back to a pre-tax ROA of 2.5% and it will only get better from there.

Do you have any specific expectations from the upcoming Budget? Any challenges facing the housing sector that you would like the Budget to address?

The housing finance sector is going through stress across the entire spectrum from developers to individual buyers. This is further accentuated by the liquidity issues being faced by the sector partly also due to lack of confidence. It would certainly help if the government would provide some confidence to the sector through measures including, a liquidity window for HFC/NBFC and additional refinance schemes on housing. Higher tax benefits on home loans would help boost demand within the housing sector.

Today all NBFCs/HFCs, irrespective of whether they are retail or wholesale, are looked at with the same jaundiced eyes. The problems plaguing this sector are largely on account of wholesale lenders, and retail lenders should not be painted with the same brush. Government must enable banks, and push them to back the retail HFCs/NBFCs.

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