LIC Housing Finance: Making Owning Homes Easier

LIC Housing Finance (LICHF) is one of the top housing finance companies (HFC) in India. Promoted by nation’s largest financial entity Life Insurance Corporation in 1989, LICHF possesses industry’s most extensive marketing network in India; in addition to its registered corporate office in Mumbai, it has seven regional offices, 16 back offices and 209 marketing units across the country. It also has over 10,478 intermediaries to extend its marketing reach to the furthest corners of the country.

The HFC enjoys the highest credit rating from CRISIL and CARE which indicates sound financial condition of the firm.

On Industry
The mortgage sector is showing a lot of potential. Low defaults, high return on assets and equity and high growth are the reasons investors are betting big on the sector. Further, with ‘Housing for All by 2022’, the demand for home credit is expected to rise. “The “Housing for all by 2022” is a huge opportunity for the housing industry. Considering its impact on other industries, it can be a game changer for the economy,” says Sunita Sharma, managing director and CEO, LICHF.
The housing credit data in India is 8 per cent of the country’s gross domestic product, while in China it is 18 per cent. The size of the housing finance industry — growing at a healthy pace of 15 per cent CAGR in the past six years — currently stands at Rs 9,00,000 crore, including both banks and HFCs. Though banks still lead with the bulk share of the industry (60 per cent), HFCs’ share has increased to 40 per cent from 29 per cent in FY08.

The Winner’s Edge
LICHF’s advances made it the second largest housing finance company in India after HDFC and third in terms of market share after HDFC and SBI, each having 15 per cent market share. Its market share has almost doubled in the last seven years to nearly 10 per cent now.
The company ‘s growth has been predominantly led by the individual loan book (retail book), which accounts for 97.5 per cent of the total loan, with bulk of the exposure to the salaried class, about 88 per cent of the retail book.

Financial Parameters
LICHF recorded a strong growth of 20 per cent in loan disbursements for the FY2014-15 compared to last year, touching a new high of Rs 30,327 crore, with individual loan disbursements totaling up to Rs 29,256 crore. During the year, the company’s gross non-peforming asset (GNPA) ratio stayed at 0.8 per cent, much below the industry level of 0.8 per cent.

In FY2014-15, the company’s total income was Rs 10,828.88 crore as against Rs 9,335 crore during the previous year, a growth of 16 per cent. Income from operations grew from Rs 9,181 crore to Rs 10,699 crore during the fiscal year.

Managing Cost Of Funds
While the HFC had many reasons to rejoice during the year, on the liability side, a prolonged elevated interest rate scenario kept its cost of funds high. The company took steps to contain it by reducing dependence on bank deposits (down from 32 per cent in FY12 to 26 per cent in FY14), which is more expensive than market borrowings as the minimum base rate of banks is around 10 per cent whereas market rates are below 10 per cent levels.

Share Price Performance
Over the last year, stock prices remained low and generated returns of about 7 per cent. In the quarter ended September 2015, net interest margin expansion was nearly 2.56 per cent (as against 2.23 per cent for Q2FY15), which was the highest in four years. Analysts are expecting it to continue in the December quarter as well by another 10 basis points.

Improving Operational & Financial Performance
The company consolidated its position and strengthened competitiveness on service delivery to grow the business qualitatively. The focus continued on winning and retaining customers through continuous efforts to upgrade information technology platform for prompt and effective service. To achieve better distribution, the company appointed new agents as well as incentivised and motivated its market intermediaries too. It also took several steps to improve recovery ratio and ensure lowest NPA levels.

Customer Responsiveness
Whether it’s a first-time homebuyer or someone looking to purchase a second home, the company’s processes are transparent and seamless for all. LICHF leverages technology to streamline its processes, keeping customers informed about its range of products and balances in their loan accounts. The company also leverages the power of a digital customer relationship management system for improved customer engagement. The system aims at improving relationship with existing customers, finding new prospective customers and winning back former customers. By using this system, all dealings involving serving, marketing, and selling products to customers can be carried out in an organised manner.

sunil.dhawan@businessworl.in @dhawansunil

(This story was published in BW | Businessworld Issue Dated 11-01-2016)