Among the older players in the housing finance segment, GIC Housing Finance (GIC HF) has some unique properties in its business model, to which it has combined aggressive targets for the next few years. The Budget thrust on affordable housing would benefit the company more than most in its peer group. S Gopakumar, MD and CEO, discusses these and other issues with R N Bhaskar and Pankaj Joshi. An edited excerpt:
Background and evolution of GIC HF
Formed in 1989, GIC HF was promoted by a clutch of public sector general insurance companies – General Insurance Corporation of India (GIC), The New India Assurance Company (NIA), National Insurance Company (NIC), The Oriental Insurance Company (OIC) and United India Insurance Company (UIIC). Today, it is a listed entity with the promoters holding less than 50 per cent.
Initially, GIC, beyond retail loans for housing, had also ventured into construction finance but stopped the same in 1999. Now the focus is entirely on retail borrowers. But the company does have tie-ups with approved projects and builders for which we extend loans to consumers – not the builders.
Industry and competition outlook
Demonetisation was a surprise for the industry as a whole. The company expects that the impact would be short-lived and the thrust on affordable housing would pick up business for the sector as a whole.
Banks have an inherent advantage over housing finance companies because they already have clients who are taking up a suite of products. However, there is a class of clientele who would prefer housing finance companies because they get more attention for their specific needs. Since this is the focus area for housing finance companies, they are better in dealing with such requirements. There is an upcoming structural change in the housing finance market, which is that lenders and builders would focus on affordable housing, mainly because it has been awarded infrastructure status.
It is a desirable scenario that the HFC industry would have an apex body which would take up the risk management of all housing loans, as has been the case in the USA. However, this is likely to happen only over the long term.
Uniqueness of GIC HF
GIC HF has a differentiation in its model on two counts. Since inception, it has offered free personal accident insurance to the borrower and free property insurance on the asset. This is unique to the company. This reduces the risk of default on the one hand. It also protects the family if a borrower meets with an accident. It also protects the family on the value of the asset in case there is a mishap and the property gets damaged.
Beyond that, since 2008, GIC HF has (through tie-ups with three life insurers) offered borrowers a preferential rate on a single-premium policy which covers the entire loan amount. Once again, this protects the company from default and also safeguards the borrower-family’s asset. The premium for this policy is also factored into the housing loan product so that payment of this premium is repaid to us gradually over a period of time and not upfront.
Current operations and competitive advantage
GIC HF estimates the asset book to be Rs 9, 300 crore by March 2017, from a level of Rs 7, 900 crore as of March 2016. The company’s internal target is to double the book between March 2016 and March 2019 — which translates into a target of Rs 16,000 crore.
GIC’s gross NPAs as of March 2016 stood at 1.79 per cent of total assets. With full provisioning, the net NPAs are nil at the end of each financial year. The gross NPAs are on the higher side compared to industry averages because GIC HF does not follow the industry norm of taking the provisioned bad loans off their books either by writing it off or by selling it to another entity. Hence, while our NPAs stood higher against the industry standard of 0.75-1 per cent, the long-term impact would be beneficial for the company.
The company has now been in an expansion mode for a while. Of its 64 branches, four have been opened in this financial year, with one more planned. The next year should see around 5-10 more branches opened. GIC HF plans to focus on Tier-II and Tier-III cities, with the thought of being closer to the borrowers.
The average loan size of GIC HF is around Rs 15.50 lakh. Around 85 per cent of the entire loan portfolio consists of loans of Rs 30 lakh and less. In FY2016, it financed around 13,000 units. The company does go up to a ticket size of Rs 3 crore but that is hardly any constituent. With this background, GIC HF is set to benefit a lot from the thrust on affordable housing.
As of date, the Western region is the major contributor to the asset book, with 51 per cent of assets (data related to FY016) is based in Western India. Mumbai itself would be around 20 per cent of the total portfolio, 23 per cent contribution comes from the Southern region and 21 per cent from the Northern region. The Eastern region is negligible primarily because of a lack of adequate presence, which the company is now set to redress. Beyond Kolkata, Cuttack and Patna, other offices are being planned in Guwahati and elsewhere. The company aims to broad-base it’s lending and expects Western region to contribute 40 per cent or less of the targeted loan book, by 2019.
The infra status to affordable housing (which is anyway GIC HF’s preferred ticket size) would indirectly help the company procure lower-cost funding, mainly from the National Housing Bank (NHB).The Budget has allocated Rs 20,000 crore to the NHB to cater to the refinance of the housing loan market, and most of this would go to the affordable housing segment. In terms of operations, other than the cost increase from opening up new offices, the company does not see any rise in fixed overheads.
