Small housing loan biz sees many players

Around 2008, when Rajnish Dhall, an Indian Institute of Management graduate as well as a seasoned banker, started a company aimed at providing loans to those not qualified for the credit from banks, it was perceived as a high-risk venture by most.

His firm, Micro Housing Finance Corporation (MHFC), offers home loans in the informal sector, to people belonging in the low income category. These people do not have the documents to get a bank loan. MHFC employed many field workers, who would gauge the repayment capability of the borrowers through informal conversation and by visiting their homes.

The maximum loan sanctioned was Rs 15 lakh, with a tenure of 15 years. As on March 31 , the gross non-performing assets (NPAs) were about 0.72 per cent, with cumulative loan sanctions of Rs 405 crore.

"We wanted to be a pioneer in affordable housing finance. Our approach and service is similar to a micro finance company but our products are of a housing finance company. The model has been immensely successful and we have seen growth of 100 per cent a year," says Dhall, the managing director.

Likewise, India Shelter Housing Finance, which started in 2011, has seen a growth of about 90 per cent a year in lending . Almost all of their lendings are to the informal sector, with occupation groups like domestic helps and drivers accounting for a large pool of customers. Investors in the company include Sequoia Capital, Nexus Venture Partners and Westbridge Capital. With gross NPAs of 0.3 per cent and loan dues of Rs 500 crore, the company is in the process of expanding across India, said Anil Mehta, managing director and chief executive.

An increase in demand for affordable housing projects has led to the emergence of a number of these companies, with loan size of Rs 5-35 lakh. Low NPAs, reasonable profits and healthy demand are attracting a lot of investors to the field. A spokesperson at the National Housing Bank (NHB) said in the past two financial years (NHB's financial year is from July to June), licences were granted to 17 new housing finance companies. Over the past two years, the number of licences issued got doubled. In 2015-16, 11 new licences were issued, against six in 2014-15 and three in 2013-14.

Applications of about eight new housing finance companies are under process with NHB. Till the date, a total of 76 companies have got licences. "According to the business plan of the companies, most of these have proposed to venture into this segment," according to NHB's spokesperson.

With the increase in number of the companies, equity flow to the sector is on the rise. For example, IFMR Capital alone enabled finance of about Rs 350 crore in the this segment in 2015-16, against Rs 200 crore in 2014-15. In the past four to five years alone, nearly 15 companies have been financed by IFMR. The company has raised Rs 400 crore as equity, said IFMR chief executive, Kshama Fernandes.

"The annual shortage of houses is about eight million, of which almost 90 per cent shortage is in this segment. Affordable housing finance is a promising segment and for long it was dominated by a few large players. In the last four-five years, a number of companies have come up. The advantage in such financing is that the defaults are minuscule and the houses are brought for occupancy," according to Fernandes.

BLOSSOMING SECTOR

• Micro housing finance companies provide loans to people who have little documents to get a bank loan
   
• In the last two financial years, NHB's granted 17 licences to new housing finance companies
  

 

In the last two years, the number of licences issued got doubled
 

During the financial year 2015-16, 11 new licences were issued, against six in 2014-15 and three in 2013-14