SBI HOME FINANCE LIMITED
I am happy to report another good year of performance. In its eighth year
of operations, SBI Home Finance is now a Company of size and substance.
Considering the financial soundness and growth opportunities, your Company
has been awarded "MM" rating from ICRA. While the need for housing finance
is still great in our country, structural reforms and legislative changes
will have to be brought in to give a boost to this industry which at the
moment is suffering under liquidity and cost of fund crisis.
2. HOUSING FINANCE SCENARIO AND PROSPECTS OF THE COMPANY
A study conducted by the National Building Construction Company indicates a
housing shortage of about 41 crores by the turn of the century. The eighth
five year plan has envisaged an outlay of Rs. 97,500 crores for housing
with the organised sector's contribution estimated at Rs. 25,000 crores.
The demand is ever increasing which will lead to substantial growth for
Housing Finance Companies (HFCs).
The Government has always taken keen interest in encouraging the housing
sector. Recently, incentives have been announced to attract the Non
Resident Indians and foreign citizens of Indian origin for investing in the
housing sector. The country is rapidly urbanising and population continues
to grow at 2% net per year. There is, therefore, no doubt about the
increase in demand for housing finance in India.
But one thing that has been continuously worrying the housing finance
industry is the availability of long term resources. Public deposits still
continue to be the main funding source of HFCs. With entry in the retail
deposit market by Financial Institutions and Public Sector Enterprises,
mobilisation of fund from the retail deposit sector has become more
difficult. Added to this is the restriction imposed by Reserve Bank of
India and NABARD on Co-operative and Gramin Banks not to invest their non-
SLR funds in deposit schemes of HFCs. A good amount of fund which used to
come from Co-operative and Gramin Banks have now virtually stopped. To
increase the volume of lending of HFCs, a sustained and regular flow of
funds into this sector is essential. The Government has allowed Provident
Funds and Superannuation Funds to invest in Bonds of PSU's. We hope, the
Government will think in terms of making these funds available to the
Housing Finance sector also.
Securitisation is potentially the most viable alternative for mobilising
resources for housing. The regulatory body of HFCs i.e. NHB is presently
working on the development of secondary mortgage market through
securitisation and issue of Mortgage Backed Securities (MBS). Once the
whole process of securitisation takes off, HFCs will be able to mobilise
resources hopefully at lower costs and thereby increase spreads. Although
the volumes of HFCs have increased many times, spreads are thinning day by
day. This is attributable to the high cost at which funds are borrowed by
HFCs Securitisation will go on to ease the liquidity and will also help to
increase the overall spreads. The wide disparity between maturities of
Assets - Liabilities is also a source of great concern for HFCs. Credit
rating are greatly dependent on this aspect. Where average lending period
of HFCs are between 8-10 years, average period of deposits is in the range
of 2-3 years To bridge this ever increasing gap, the housing finance sector
needs more long term resources. National Housing Bank is contemplating a
pilot issue of mortgage backed bonds and have included SBI Home Finance as
one of the participants.
Inspite of several impediments to growth as stated earlier, your Company
has done well in the year under review. With the demand for housing finance
increasing day by day, I see no reason why your Company will not only
succeed in maintaining the growth rate but also increase its market share
considerably through better customer service and some relief by Government/
National Housing Bank to the cost of fund.
3. FINANCIAL RESULTS
Tough operating conditions such as tight liquidity position, depressed
capital market and rise in cost of funds have taken a toll on SBIHF's
performance for the year ended March, 1996. Despite yields increasing
marginally, high borrowing costs caused the overall spreads to decrease.
Cumulative sanctions had increased 40.28 percent from Rs. 509 crores to Rs.
714 crores for the year ended March 1996. During the same period,
cumulative disbursements have increased 49.58 percent from Rs. 355 crores
to Rs. 531 crores. This year has seen a faster rate of growth of
disbursements with the gap between sanctions and disbursement being reduced
considerably. Total disbursements of 78% over sanctions in 1994-95 have
increased to 86% in 1995-96. The high disbursement growth led to a
substantial increase in total assets, which at Rs. 388.80 crores recorded a
22 percent increase cover last year.
4. PRUDENTIAL NORMS
Reforms in the financial sector have included the phasing in of prudential
norms for income recognition, classification of assets and provisioning for
bad debts, revised formats for making balance sheet and profit and loss
account to reflect the actual financial health and a time schedule for
attaining eight percent (8%) capital to risk weighted assets. The entire
range of reforms is aimed at promoting competition and bringing more
transparency. Your Company have adhered to these norms strictly and have
met all the requirements comfortably.
5. CAPITAL ISSUE
Last couple of months have witnessed an acute shortage of liquidity. This
is in complete contrast of the market scenario during the most of the
earlier months in 1995-96. The market remained subdued. Although, your
Company planned to come out with capital issue in the last year, the
depressed stock market together with the prevailing liquidity crunch forced
your Company to freeze the issue for the time being. The subject will be
reopened once the stock market revives.
I take this opportunity to sincerely thank the promoters i.e. the State
Bank of India and Housing Development Finance Corporation, Shareholders,
Depositors, National Housing Bank, Securities Exchange Board of India,
Department of Company Affairs, Central Board of Direct Taxes and all All-
India financial institutions for their wholehearted co-operation and
support. I would like to place on record my appreciation of the painstaking
efforts of the Company's staff at all levels for the good performance of
the Company for the eighth year in succession.
Dated : 1st August, 1996