Too early to reduce lending rates: V K Sharma

Interview with MD & CEO, LIC Housing Finance

LIC Housing Finance (LIC HF) says it will better the segment's average growth rate, despite the current volatile economic condition. V K Sharma, managing director and chief executive, tells Krishna Pophale about the strategy and related issues. Edited excerpts:

While loan demand from the corporate sector was sluggish, banks were pinning hope on retail loans. What kind of growth has LIC HF seen in home loans?
Last year, the sector was challenging and volatile. But we have done well. As of the end of the third quarter, we achieved 26 per growth in our loan portfolio. We are yet to declare results for Q4, so I won't be commenting on those numbers but, hopefully, we should be able to grow above the industry (average).

From which areas have you seen more demand coming?

Our customers are primarily salaried. Barring part of the northern region, we have witnessed growth in all the regions. About 60 per cent of our business is in metro and larger (tier-1) cities. We have seen growth in all cities.

What was the reason behind launching the for-women product, 'Bhagyalakshmi'?
Our database shows where women are the property owners, delinquencies are very few. They are responsible borrowers. Therefore, they should be given a different credit appraisal.

How is the response to the scheme?
A tremendous response. We have approved a little more than Rs 3,000 crore of loans to about 15,000 borrowers in this scheme. We were supposed to close the scheme on March 31 but are getting calls to extend it. We are most likely to extend the scheme for another quarter.

How much are you planning to raise through external commercial borrowing (ECB)?
We have applied to raise $300 million via ECB but are waiting for approval from the Reserve Bank of India. This will reduce borrowing cost to some extent and we will be able to lend more in the priority sector.

How has your cost of funds moved in the last few months, since the Reserve Bank reduced the key interest rates?
It has come down by a few basis points but it's not enough for us to further reduce our lending rates. When RBI started increasing the rates, it did so by 350 basis points, while the banks did it by 375 basis points. On the other hand, we increased our rates only by 290 basis points. We absorbed a certain part. Similarly, while interest rates are softening, we will be definitely be passing the reduction transparently but it would be slower.

Your parent, LIC, has said it would foray into the banking sector through LIC HF. What preparations have you started?
We are reviewing the guidelines as LIC has asked us to do. It's an ongoing process and we still have time in hand if we wish to apply.

Did you benefit from the additional 10 per cent exposure allowed to debt mutual funds by Sebi to invest in HFCs?
Earlier, there was no limitation. Then, Sebi capped it at 30 per cent. Then, they allowed additional 10 per cent investments in HFCs. I would say the impact is neutral.

The margins are under pressure. What are the reasons?

Our borrowing cost has gone up substantially. We had decided to shrink loans to the developers' portfolio, a high margin segment. Currently, 96 per cent of our loan book consists of retail loans and four per cent to developers. In the past two years, we gave almost no loans to developers, except for a few ongoing projects. Now, we have again started giving loans to developers but are very cautious in doing so.