Regulator has been urging caution on NBFC pricing: Aadhar HF MD & CEO

The adjustments in the US economy suggest we may see stability over time, says Rishi Anand

The 25 basis points reduction in repo rate will directly benefit 79 per cent of consumers who have floating rates, says Rishi Anand, managing director and chief executive officer (MD & CEO) of Aadhar Housing Finance. In an interview in New Delhi, Anand told Harsh Kumar that he expects growth rates of 20-22 per cent in assets under management and 18-20 per cent in disbursement in the financial year 2025-26 (FY26) for the non-banking financial company. Edited excerpts:

 

The Reserve Bank of India (RBI) reduced the repo rate (RR) by 25 bps to 6.25 per cent. How will this impact housing finance lending?

 

I see this as a very positive development. After five years, the reduction in the repo rate will have a direct impact on consumers. For instance, in the case of Aadhar Housing Finance, we have a total liability book of Rs 15,000 crores of which 12 per cent is linked to the repo rate. The remainder is tied to the MCLR (Marginal Cost of Funds Based Lending Rate), which means the repo rate will influence our costs immediately, while the MCLR adjustment may take about three to six months before we can pass on any changes to consumers.

 

It ultimately depends on how banks respond. If they pass on the entire 25 basis points, which isn’t always typical, consumers will feel the effects. Since 79 per cent of consumers have floating rates and 80 per cent of borrowing is also floating, any change will directly impact them. Overall, this is a beneficial move that should help consumers.

 

While global economic conditions present challenges, I believe the recent changes are manageable. The adjustments in the US economy suggest we may see stability over time. In my opinion, the government should be able to maintain this 25 basis point cut, although I don’t anticipate another reduction in the near future. Nonetheless, this cut sends a positive signal to the banking system, and some more measures to further infuse liquidity could further improve the situation.

 

What led to RBI asking large NBFCs to reveal the total rate charged to customers on each loan product?

 

The RBI is vigilant in monitoring data, particularly because some NBFCs, MFIs, and housing finance companies have been charging exorbitant rates. Over time, the regulator has been urging caution regarding pricing. To enhance transparency, it is now mandatory for us to display interest rate slabs on our websites monthly. This information is now publicly accessible, fostering greater transparency in the market. As a result, consumers can clearly see our rates, just like they would with any bank.

 

The RBI consistently emphasises the importance of transparency for consumers. While I don’t foresee any drastic changes, this approach aims to sensitise companies like ours. However, it also cautions that lending should be approached carefully. The concerns raised are largely directed at unsecured lending and MFIs, where there were previous regulations on exposure limits to prevent over-lending. While some companies may operate with ill intent, I believe most do not. The issues often stem from timing rather than intent.

 

What is the status of the long pending demand of HFCs on change in definition of affordable housing?

 

We have been advocating for a change in the definition of affordable housing in the last two or three budgets. Currently, the limits are set at Rs 35 lakh for metro areas and Rs 25 lakh for non-metro areas. Given the rising costs and property prices, we believe these limits should be increased to Rs 45 lakh and Rs 35 lakh, respectively. While we initially pushed for Rs 50 lakh and Rs 40 lakh, even a Rs 10 lakh increase would significantly help. I trust the government is aware of this and will address it in due course.

 

Within the affordable housing segment, which is currently capped at Rs 35 lakh, there’s substantial growth. Leading research institutions project a growth rate of 20-25 per cent in this segment, compared to 15-16 per cent for overall housing.

 

Our focus in housing finance, particularly in the low-income space, revolves around distribution. We currently operate about 560 branches across 21 states and aim to expand by 50 to 60 branches annually, targeting around 750 branches in three years. Our goal is to ensure we reach every district in the country, as our growth depends on our ability to connect with customers nationwide. We are also exploring external commercial borrowings (ECBs) among other funding options, but for now, we are focused on maintaining our current financial structure.

 

What kind of trend do you see in terms of asset quality as your major exposure is in the high risk segment? And what is your growth outlook for this sector?

 

Our asset quality remains strong, with our NPAs (non-performing assets) closing the quarter at 1.36 per cent, a slight reduction from 1.4 per cent in the same quarter last year. We anticipate ending the year at around 1.1 per cent, which is quite healthy for the affordable housing sector. Regarding Aadhar Housing Finance, we are focused solely on housing finance. Our business model is centred on two types of loans: retail home loans and loans against property. We expect growth rates of 20-22 per cent in assets under management, 18-20 per cent in disbursement growth, and a profit growth of around 20 per cent. We aim to sustain our spreads at approximately 5.7 per cent, net interest margins at about 9 per cent, and GNPA at around 1.1 per cent. Additionally, we project return on assets (ROA) of about 4.3-4.4 per cent. Although it may take time for our return on equity (ROE) to recover, we remain committed to delivering on all key metrics and will continue to do so.