L&T set to bolster housing finance subsidiary

L&T Finance Holdings, the publicly held financial services company, is rolling out strong measures to bolster its housing finance arm. L&T entered this segment early this year when the company acquired Indo-Pacific Housing Finance, which presently has a book size of around Rs 250 crore. L&T Finance Holdings is also looking to scale the book size to close to Rs 5,000 crore over the next few years by broad basing the target segment from its earlier focus on low-income segment.

The housing finance will be a new standalone entity directly under the L&T Finance Holdings (LTFH) and will be the fifth business vertical. L&T Finance Holdings is a financial holding company offering a diverse range of financial products and services across the corporate, retail and infrastructure finance sectors, as well as mutual fund products and investment management services, through its direct and indirect wholly-owned subsidiaries, namely, L&T Finance Limited, L&T Infrastructure Finance, L&T Investment Management Limited (L&T Mutual Fund), and L&T FinCorp Limited. The total book size by end of June 30, 2012 was little over Rs 26,000 crore.

N Sivaraman, President and whole-time Director of L&T Finance Holdings, told Business Standard that Indo-Pacific Housing was acquired as it has clean books with almost nil NPAs. “What we intend to do is broad base the target segment and go after salaried class in the urban segment and self-employed in the rural areas,” he said. With this acquisition, LTFH has taken the first step to go beyond its asset finance orientation into the consumer finance domain. “We chose the route of acquiring a small, operating business as our route to entry in this market, because it brings with it a fully functional operating platform, is registered with NHB and has a well experienced team of mortgage experts. You add to that our already existing national reach - an all India capacity of sales, credit and service - and you have ideal conditions for quick growth,” Sivaraman added.

According to industry analysts, only around 37.5 per cent of urban and 7.9 per cent of rural transactions are currently being financed, which presents significant opportunity in both segments for financiers. For the industry, loans and disbursements expected to grow at a CAGR of 15.6 per cent and14.2 per cent respectively, over the next four years.

Further, Sivaraman said that eventually Indo-Pacific Housing Finance will be re-branded and the division will leverage effectively L&T’s vast network across India. It is also understood that L&T Finance Holdings is in discussions with Hong-Kong based private equity (PE) fund AIF Capital for a possible equity infusion, an aspect on which both the companies denied.

Investment bankers indicated that there was a possibility of AIF infusing around Rs 120 crore into the housing finance subsidiary. However, Sivaraman denied any such move saying that they intend to infuse equity on their own as and when it is required. “The net worth of the housing finance arm is Rs 100 crore and the book size is Rs 250 crore. We can leverage 6-7 times and post that, we will think about infusion,” he told Business Standard.