Tata Capital—the financial services subsidiary of Tata Group—is planning to expand its business by opening 60 to 70 new branches in 2017, which will help company to tap customers from around 400-500 new sub-locations. These branches are targeted primarily at affordable segments. The total loan portfolio of Tata Capital at present stands at approximately Rs52,000 crore. Out of this, Rs30,000 crore is retail loan, and includes Rs17,000 crore of housing loan. We talk to Govind Sankaranarayanan, chief operating officer - retail business and housing finance to know about his company’s initiatives and how real estate and interest rate scenario looks ahead.
What is your view on residential housing segment? What would you like to suggest to a prospective homebuyer who is looking to buy a property for end use and one who is looking to buy property for investment? Is it a good time?
Any real estate decision is very market specific. But generally speaking there is a significant flattening of home prices in the last 3 to 4 years. Beside that, there is fare amount of inventory overhang, although inventory has came down slightly in last few months. Sales are quite and same is the case with new project launches.
From the inclusive perspective, this is not a bad time to buy. In fact, on top of the discount and freebies that developer is offering, I think it is a good time to buy if you need to live in it. But if you are looking purely as to invest in it, then I am not very sure because land prices and property prices have reached a place where further appreciation as witnessed in the past is not possible. Besides that, rental yield are too less when it comes to residential segment.
How has slump in real estate sector in the past few years impacted the home financing companies?
Home loan companies have done very well in last few years; so there is no impact as such because of slump in real estate. Obviously there would have been more demand if there was no slump.
But I think it is important to understand how home loan financing companies makes money. Most large housing finance companies make some money on home loans, but they make much more money from loan against property and construction finance. That is the model on which the industry functions.
So if there is a slump in home loan sales, then the people who initially get impacted the most are builders. So when the builders need money, they come to housing finance companies like us.
While the housing finance companies may not able to make as much money in the home loan segment, it may be able to get offsetting price from the builder because the builder is not getting the money from the home buyers. Normally the builder would have paid 13% interest but he would be paying 15% interest now.
I don not have lot of customers who pay me 10% interest but I have some builders who are paying me 15%, and that is why home finance companies have not performed very badly. But obviously the demand is less and that is not a good thing.
Home loan rates have came down substantially compared to the rate couple of years back. Do you think it will improve home sales and subsequently home loans?
Certainly lowering interest rates to the magnitude of 175-200 basis points is a very attractive thing for an EMI. It will bring a lot of home buyers who otherwise would not have gotten into the space. Now, why are we not seeing it? Partly because not long after interest rates cuts, we had demonetisation and there is some perception that property rates can fall further. I don’t think property rates can fall further in normal housing projects as there is no room to do so for developers offering property in range of around Rs50 lakh. However, I think there is certain scope of price correction in luxury segment as I don’t see many buyers in that segment.
Do you think the lower home loan interest rates are going to sustain?
The RBI has indicated that it will remain flat. After demonetisation, I don’t think there is desire to increase the interest rate. Inflation appears to be reasonably low and for the next 9 to12 months, the current prevailing interest rate will continue.
Tell me about Tata Capital’s Prapti Home Loans?
Prapti Home Loans is essentially our version of Pradhan Mantri Awas Yojna scheme, which is a very attractive scheme for someone who earns less than Rs3 lakh per annum and wants a house which is about 60 sq. m in carpet area in certain pre-defined locations where the National Housing Banks offer a subsidy on loans. So, Tata capital is essentially marketing such loans. It is a good scheme, and with proposed change in Budget 2017 in the definition of affordable housing scheme, it is expected to attract more and more home buyers.
There is a considerable push by government towards digitization. What are the steps Tata Capital is taking towards the same?
We are at the forefront of the digital initiative. There are two parts to digital to explain this—one part is what I called digital plumbing, which everyone should do. Everyone should have that biometric KYC devises instead of giving PAN card or Aadhaar card and so on. Another is digital collection, where instead of collecting cheques by hand, we should find some way through e-wallets or websites. Every decent-sized company should be doing it and we are one of them. The second element of digital is digital sourcing, where you have some aggregators such as Bankbazar.com, Policybazar.com, and so on. These aggregators decide which home loan borrower should go to which lender and being in the business, we should also be there on the list. Apart from this, we are also tying up with other websites and tools to acquire customers and serve them. For instance, we have tied up with carwale.com where we enable a person who is looking to buy a car to get a loan online. It also helps customer to buy used cars through loans. Similarly, we have tied up with Biz2credit.com, a US-based website to reach retail loan customers or small businesses looking for loans. We also have a very successful app called ‘Parichay’, where anyone can refer a potential customer to us and they get some sort of benefit for the same.
How was the loan disbursement in the last quarter? What are your expectations and how do you see things shaping up for the real estate sector going forward?
We were doing about Rs900 crore disbursements till October last year. However, post demonetisation, it went down by about 30% during November, December and January. But now it is back to the same level. We have been growing at around 30-35% per annum; demonetisation impacted us a bit, but we think this year, too, we will be able to grow at the same pace.
Given government’s aim of housing for all by 2022 and push to promote affordable housing, which is evident from the last two Budget announcements, Tata Capital will also focus on providing loan to homebuyers in the affordable housing segment.
Moreover, once Real Estate (regulations and development) Act 2016 comes into play, it will bring in improvements in the sector. Some of the provisions such as opening an escrow account for each project will certainly build the buyers’ confidence. Developer will not be able to divert money and project will get completed on time.