Anshu Jain, Jaspal Bindra & Subhash Chandra backing companies seeking mortgage licences.
MUMBAI: While much attention has been focused on new bank licences, some high-profile names are looking to enter a segment thats not attracted as much interest -housing finance. They include Anshu Jain, Jaspal Bindra and Subhash Chandra, all of whom are backing companies seeking mortgage licences.
Eight licences were awarded in the last round in FY15. Another nine companies, including the private equity fund Everstone-backed Indostar Home Finance Ltd, are seeking licences from the National Housing Bank (NHB) in a market that’s growing at an average 18% compared with about 12% in 2010.NHB is responsible for licensing mortgage companies.
Jain was formerly co-CEO of Deutsche Bank and Bindra was former Asia chief of StanChart Bank.Chandra heads the Zee Group.
NHB managing director Sriram Kalyanaraman confirmed the heightened interest and said the home finance sector has grown by 1819% in the past three years with overall delinquency of less than 2%, astonishingly low compared with banks’ bad loans. Those numbers may come as a surprise given the perception that real estate has been in the doldrums since the 2008 crisis. That clearly doesn’t seem to be the case, experts said.
With the economy poised to grow faster and the government looking to implement reforms in the sector such as setting up a regulator, housing is likely to get even more of a boost, especially as the Smart Cities project and the Pradhan Mantri Awas Yojana (PMAY) gathers pace.
The PMAY affordable housing programme has been aided by initiatives such as the Credit Linked Subsidy Scheme (CLSS), Kalyanaraman said.
Under CLSS, the government gives a 6.5% interest subsidy to homebuyers whose yearly household income is below `. 6 lakh. NHB is the nodal agency for the scheme.
Even global funds such as Carlyle and TPG have acquired stakes in housing finance companies such as PNB Housing and ICICI Home Finance, encouraged by the move to digitize land records and the government’s focus on housing for all. The share of housing finance companies in the mortgage market has risen to 37% from 30% in 2010, according to ICRA, a unit of ratings company Moody’s. Other factors have also been helpful. “The advent of credit bureaus has enabled the housing finance companies to sort of create a segmental underwriting model based on the customer’s profile,” said Kalyanaraman.
While financial services are in general bogged down by bad loans, housing finance has the lowest level of defaults in finance industry.
Here’s a look at the gross non-performing asset (NPA) ratio at three big mortgage companies: *Housing Development Finance Corp (HDFC): 0.7% *Indiabulls Housing Finance Ltd: 0.9% *Dewan Housing Finance Corp.: 0.8%.
The low level of bad loans, high returns on assets and equity and high growth are the prime reasons attracting investors to the sector.
The potential is vast, given the shortage. The 2011 census showed housing stock rose 33% to 33.1crore from 24.9 crore in 2001. The shortage of urban housing is estimated at 18.78 m units and that of rural housing at 43.67 m, according to the working group report on housing for 12th Five Year Plan (2012-17).