Contact Your Financial Adviser Money Making MC
23
June 2017
 |
Home Loan (The Total Investment & Insurance
Solutions)
Accelerated
urbanisation due to faster economic growth over the last decade and a half has
created a massive need for affordable housing as well as home loans in the
ticket size of up to Rs15 lakh, says a research note. The Total Investment & Insurance Solutions
In its
report, India Ratings and Research (Ind-Ra) says, "Affordable housing
finance, largely for loan ticket size up to Rs15 lakh will become a large
segment for housing finance companies (HFCs) in the next five years, with the
estimated share to increase to around 37% in FY2022, compared with 26% in
FY2017." The Total Investment
& Insurance Solutions
Ind-Ra says
it anticipates a demand for 2.5 crore homes, which is four times of the entire
current housing finance stock, over next five years, in the medium income group
(MIG) and lower income group (LIG) categories. The Total Investment & Insurance Solutions
"A
combination of factors like government financial and policy thrust, regulatory
support, rising urbanisation, increasing nuclearisation of families, and
increasing affordability is converting latent demand into a commercially
lucrative business opportunity," the ratings agency added.
Ind-Ra
expects the sector to attract over Rs20,000 crore of equity inflows over
FY2017-FY2022, which would support growth. The Total Investment & Insurance Solutions
Ind-Ra's
analysis reveals that on operating cost metrics, the new entrants with their
pan-India ambitions would need to build scale quickly to compete with the
incumbents, whose regional-focussed models have helped maintain tight
operational expenses (opex) ratios, in addition to their funding cost
advantage.
This, Ind-Ra
says, entails building up the book at a rapid pace and hence will lead to high
proportion of unseasoned portfolio at any point in time. To offset this, it
would necessitate having the right people “with adequate skill-set”, who have
seen various cycles and scale and the right 'processes', building a scalable
credit funnel and robust underwriting platform while getting the pricing,
including risk and opex adjusted spreads, right. These would be the key
differentiators for the new age housing finance companies (HFCs). The Total Investment & Insurance
Solutions
According to
the ratings agency, informal credit assessment remains the crux for the
segment, and therefore reasonable assessment of instalment-paying ability,
while keeping sufficient margin for income volatility over lifecycle, would be
of prime importance.
Talking
about key risks and possible mitigants, Ind-Ra says, aggressive expansion
without ensuring appropriate credit assessment could be a risk for the segment,
especially in view of limited financial data available and possibly a less
financial savvy customer segment.
"In
addition, the segment requires high customer connect, therefore, attracting and
retaining people with on ground connect would be of prime importance," the
ratings agency says, adding, "HFCs would need to build a sense of
ownership, as well as develop a right incentive structure to manage this risk.
Operationally, managing liquidity, mainly in view of long tenure nature of
assets, would be key consideration." The Total Investment & Insurance Solutions
Ind-Ra says
it expects a prudent asset liability tenure management by HFCs. "Informal
credit assessment remains the crux for the segment, and hence reasonable
assessment of instalment paying ability while keeping sufficient margin for
income volatility over lifecycle would be of prime importance," it
concluded. The Total Investment
& Insurance Solutions
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