Procurement News Notice |
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| PNN | 5179 |
| Work Detail | Don’t put all your eggs in one basket, is an old adage used predominantly in the financial world to stress the importance of diversifying risks. Investors are often told to invest across asset classes such as equities, mutual funds, gold, fixed deposits, bonds, real estate and the like. Diversification is a key for business profitability as well and Indian brokerages seem to have taken it seriously and successfully. Leading Indian brokerages – also called as financial services firms – such as Motilal Oswal Financial Services, IIFL (India Infoline Group) and Edelweiss Financial Services have a presence in the home finance space with a sizeable loan book size. Under-penetrated “India’s mortgage finance market is largely under-penetrated compared with the rest of the world, providing sufficient opportunity for housing financiers to step up their housing credit,” R. Venkataraman, Managing Director and Co-Promoter, IIFL Group said. “Within the consumer finance business, we have successfully scaled up our home finance and mortgage business. We believe this segment is likely to grow significantly on the back of strong demand for housing,” he said. IIFL extends home finance through its 100 per cent subsidiary India Infoline Housing Finance Ltd. It was registered as a housing finance company in 2009 and currently has over 55 branches, 100 pre-approved projects across India and over 1,000 employees. As on 30th June, the company’s retail mortgage loan book stood at Rs.9,122 crore up 65 per cent year-on-year. Further, the retail mortgage business comprises about 50 per cent of IIFL’s NBFC loan book of Rs.18,559.7 crore. The average home loan size is less than Rs.20 lakh. But, IIFL is not alone. Aspire Home Finance Corporation, promoted by Motilal Oswal Financial Services is also steadily increasing its presence in this space. It has 62 branches and more than 600 employees. Anil Sachidanand, Managing Director and Chief Executive Officer, Aspire Home Finance, said that for brokerages, housing finance is one of the better avenues to deploy capital generated from the broking business since it is perceived to be largely non-cyclical. “Housing finance inherently being non-cyclical in nature complements the cyclical nature of broking business. Further, as an asset class, housing finance has more predictability in terms of earnings and cash flow, has historically seen low delinquencies and the inherent demand for home finance, especially at the retail level in India makes it attractive for investments ,” Mr. Sachidanand said. Healthy returns He said that if managed properly, the home finance business could give more than 20-25 per cent return on equity and 2-2.5 per cent return on assets on a sustainable basis. As on 30th June, the loan portfolio of Aspire stood at Rs.2,492 crore with more than 25,000 active accounts. The gross non-performing asset (NPA) and net NPA levels were 0.22 per cent and 0.19 per cent, respectively. With an average loan size of Rs.10 lakh, it is providing housing finance assistance to lower and middle income Indian families.Interestingly, the brokerages are betting big on the current government’s ‘Pradhan Mantri Awas Yojna’ that was launched on June 25, 2015 and envisages building two crore houses by 2022. The scheme primarily targets people belonging to the low-income group and the economically weaker sections. Spread across three phases, the scheme plans to cover all cities in the country in seven years. Strategy valid The question now is whether the diversification strategy of these entities is paying off. Aspire, which started operations in June 2014, provided housing finance assistance to 3,565 Indian families through cumulative disbursements of Rs.358 crore in the first 10 months of its operations. The company turned profitable in its first year with a net profit of Rs.2.17 crore and followed it up with a profit of Rs.39.99 crore in 2015-16. In 2015-16, it funded more than 18,000 customers mostly focusing on people living in extended suburbs of metro- and mini-metro towns, underserved Tier II and Tier III locations and potential semi-urban and rural housing locations. The decision to venture into the lending business has also been necessitated by the falling margins in the capital market businesses. Brokerage, which was once the main source of income for these entities, has been shrinking steadily over the years. With the advent of discount brokerages, the charges that were earlier a percentage of the trade value have now dropped to as low as Rs.10 in many cases. Interestingly, there are a few discount brokerages that even allow investors to trade for free. Market participants said that while the number of players in the housing finance space has been growing there is still tremendous headroom for growth. These financial services entities have even factored in the macro-economic parameters before taking the plunge. The mortgage to gross domestic product (GDP) is typically more than 80 per cent in developed countries while it is only seven per cent in India, says Mr Sachidanand. Edelweiss, which started as a brokerage and is now a full-fledged financial services firm, has also been bitten by the home finance bug. Six years ago, the then-brokerage embarked upon an exercise to diversify its revenue mix by foraying into the business of retail financial services. “About two-thirds of our income is from credit business and the remaining is from investment banking, capital markets and other advisory businesses,” said Anil Kothuri, Head-Retail Finance & CEO, Housing Finance, Edelweiss. As on August 31, Edelweiss’ retail loan book size was close to Rs.5,500 crore of which about Rs.1,500 crore was in home loans with the average loan size of Rs.11-12 lakh. Edelweiss Retail Finance has 50 branches spread across the country and a staff strength of about 700. “The individual borrower in India today is starved of credit, both in terms of quantum as well as choices of product,” according to Mr. Kothuri. He said that the also company catered to to segments that do not have access to finance due to inadequate documentation. “We assess the borrowers through various surrogate programs to come up with loan eligibility. We enable the process of financial inclusion by catering to customers who are not usually served by the banking system,” he said. A July 2016 report by Morgan Stanley stated that over the last two years, the overall loan book of non-banking financial companies (NBFCs) “grew at 16 per cent annually, or almost twice as fast as bank credit growth over the same period.” “The distribution reach of many NBFCs remain unmatched by banks in areas such as microfinance, used-vehicle financing or rural housing,” said the report adding that even banks are willing to fund these NBFCs, either to meet priority sector lending norms or merely because it is s ‘lazy banking,’ according to the report. For many borrowers who do not have access to bank credit, such housing finance companies serve as a ray of hope. But, they also come at a higher cost when compared with a bank. Typically, the interest rate is 200-300 basis points higher than that charged by a bank. But, that has not stopped the growth of these companies. For instance, the retail lending business of Edelweiss has shown a strong growth since inception and has registered an annual growth rate of of close to 50 per cent over the past 3-4 years. With this kind of growth, access to funds becomes key to market penetration. Aspire has a capital commitment of Rs.500 crore from its parent entity, but if it needs more capital it will dip into its internal accruals and only then would look at external fund raising. India Infoline Housing Finance depends on a mix of borrowing sources including banks, mutual funds, insurance companies and the public. |
| Country | India , Southern Asia |
| Industry | Financial Services |
| Entry Date | 15 Oct 2016 |
| Source | http://www.thehindu.com/business/Industry/brokerages-tryst-with-home-finance-pays-off/article9072604.ece |
